Basic Principle of Audit-WPS Office PDF

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Abraham Abraham...

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Basic Principles Governing an Audit Whenever an audit is carried out, the principles of auditing are the guidelines to be followed. There are certain fundamental principles that govern the auditors responsibilities and work. They make audit an effective and reliable tool keeping up the integrity and reliability of financial statements of an organization. An audit should be based on the following principles: 1. Integrity: The foundation of auditing is integrity. An auditor should be straight forward, honest and sincere in his approach to his professional work. He should maintain an impartial attitude, He should remain fair and unbiased in all his dealings. An auditor should observe and comply with applicable legal requirements. 2. Objectivity An auditor should be objective in his approach to professional work. He should not permit prejudice to overcome his objectivity. He should resist any attempt to influence his judgement. An auditor is expected to be an honest, diligent and responsible person. 3. Independence Independence is the basic requirement for objectivity and impartiality of audit. Only when the auditor is independent of the organization being audited, the audit report will be objective, impartial and fair. The professional code of conduct requires an auditor to be independent so as to give credibility to his audit report. An auditor should have an independent approach and should be free from bias and prejudice. He should remain free from conflict of interest. 4 Professional Competence and Due Care the The audit should be performed and the report should be prepared with professional competence and due care. An auditor should have adequate training, experience and competence in auditing. He is required to be professionally skilful and competent. He has to exercise due care based on the importance of the audit assignment. He is pare expected to make reasonable judgements in all audit situations. 5. Confidentiality An auditor should maintain confidentiality of information acquired in the course of his audit work. He belongs to a significant profession, which requires several legal, ethical and moral responsibilities on his part. He is bound by a professional code of conduet to handle confidential information of the organisation properly. He should keep the audit working papers of the organization in safe custody to avoid pur be its misuse. An auditor should not use audit information either for reu personal gain, or against the interests of the organisation. 6. Fair Presentation

An auditor is obliged to report truthfully and accurately. He should express audit findings, conclusions and reports of the audit activities correctly. He should make sure that communication is accurate, truthful, objective, clear, complete and timely. Presentation of financial statements should be fair, and in conformity with the accounting de standards and applicable laws. 7. Planning The auditor should plan his work, prepare a schedule of activities, proceed with the work systematically, and finish the work in time. Planning will enable him to conduct the audit in an efficient, effective and timely manner. 8. Audit Evidence In the audit process, auditor has to collect and evaluate evidences to establish facts, and to draw reasonable conclusions. Auditor has to frame his opinion based on evidences.methods like inspection, observation, enquiry confirmation computation and analytical review. The auditor should review and assess the conclusions drawn fron the audit evidence to submit the audit report The audit report shopl contain a clear written opinion on the financial information of A organization. An auditor must comply with the provisions. 9.Professional Behaviour An auditor should behave in a manner consistent with the fame of his profession, and keep himself away from any misconduct professionally qualified auditor should have adequate knowledge, skill and training in the art of auditing. He should be thorough with the recent developments in auditing, accounting and law. TAX AUDIT The audited financial accounts of a business concern will be of much importance and use not only to the concern, but also to many people outside the concern like investors, banks, creditors, suppliers, labour unions and tax authorities. However, these statements and accounts may not fulfil the requirements of all the parties alike. The Income Tax Authorities have to depend upon these audited accounts to assess the amount of tax payable. The audited accounts as such will not serve the purpose of assessing tax. Generally the accounting profit and tax profit will not be one and the same. Hence, these accounts will have to be reexamined to determine the tax profit and the amount of tax payable by the concern. This process of reexamining the audited accounts for the purpose of assessing tax is known as Tax Audit. Objectives of Tax Audit The main objectives of tax audit may be described as follows: 1. To ensure proper maintenance of books of accounts and other records to reflect the true income of the assessee

2. To encourage voluntary compliance with the tax laws and regulations, 3. To ensure that a higher tax compliance rate is achieved 4. To ensure that the correct amount of income has been reported, 5.To determine the correct amount off tax payable by a concen on its income, 6.To ensure that the right amount of tax has been in accordance with the tax laws and regulations, 7.. To provide tax advice and tax planning consultancy, 8. To prevent tax loss and tax evasion. 9. To create awareness among assessees towards their rights and responsibilities under the Income Tax Act...