Page 19 - CA Inter Audit PARAM

CA Ravi Taori
➢ The Nature of Audit Procedures
There are practical and legal limitations on the auditor’s ability to obtain audit evidence.
For example:
• Intentional or Unintentional Misinformation from Management:
There is the possibility that management or others may not provide, intentionally
or unintentionally, the complete information that is relevant to the preparation
and presentation of the financial statements or that has been requested by the
auditor. Accordingly, the auditor cannot be certain of the completeness of
information, even though the auditor has performed audit procedures to obtain
assurance that all relevant information has been obtained.
(E.g., Management has entered in agreement to share revenue with Suppliers,
Provision remained unrecorded)

• Sophisticatedly Designed Frauds:
Fraud may involve sophisticated and carefully organised schemes designed to
conceal it. Therefore, audit procedures used to gather audit evidence may be
ineffective for detecting an intentional misstatement that involves, for example,
collusion to falsify documentation which may cause the auditor to believe that
audit evidence is valid when it is not. The auditor is neither trained as nor expected
to be an expert in the authentication of documents.
(E.g., Supplier, Store Manager, Quality Engineer, Accountant, MD all are involved)

• No powers of Investigation:
An audit is not an official investigation into alleged wrongdoing. Accordingly, the
auditor is not given specific legal powers, such as the power of search, which may
be necessary for such an investigation.

• Sampling & Persuasive Evidence (Extra Points)

➢ Timeliness of Financial Reporting and the Balance between Benefit and Cost

Delay reduces value of information:
Notwithstanding this, the relevance of information, and thereby its value, tends to
diminish over time, and there is a balance to be struck between their liability of
information and its cost. This is recognised in certain financial reporting frameworks (see,
for example, the “Framework for the Preparation and Presentation of Financial Statements”
issued by the Institute of Chartered Accountants of India (ICAI)).

Expectations of Users:
Therefore, there is an expectation by users off financial statements that the auditor will
form an opinion on the financial statements within a reasonable period of time and at a
reasonable cost, recognising that it is impracticable to address all information that may exist
or to pursue every matter exhaustively on the assumption that information is in error or
fraudulent until proved otherwise.

Difficulty, Time, or Cost not Valid basis to Omit Audit Procedures:
The matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to
omit an audit procedure for which there is no alternative or to be satisfied with audit
evidence that is less than persuasive. Appropriate planning assists in making sufficient time
and resources available for the conduct of the audit.

QNO-- Whether Overall Objective Covers Responsibility to Detect Fraud ? New Course – (S24E)
200.010 Bhaskar CNO – SA200.020

"PD & Co., Chartered Accountants, were appointed as the statutory auditors of MR Limited for the
financial year 2023-24. MR Limited included the following clause in the appointment letter to the
auditors: "The Auditor shall be responsible for detecting the frauds that may happen in the company
during the financial year 2023-24.”

The auditor objected to the inclusion of such a clause in the appointment letter. Discuss in the light of
scope of audit."
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