Page 23 - CA Inter Audit PARAM

CA Ravi Taori
o Accepting oral justifications, Xerox copies is important matters.
o Ignoring small unusual things such as withdrawal of Rs 5 from bank or small errors
such as negative inventory balance of small item etc)
➢ How to remain sceptical?
Questioning Mind
• Reliability
Information that brings into question the reliability of documents and responses to
inquiries to be used as audit evidence.
o (E.g., Figures are over written / 5-year-old document is appearing as if just printed)

• Suspicion
Conditions that may indicate possible fraud.
o (E.g., 20% increase in consumption of petrol while production increased 5%)

Critical Assessment
• Stop Blind Reliance
Also, don’t just rely blindly rely on past, current year evaluation is must
o (E.g., Only because management is not involved in any fraud in past doesn’t mean,
financial statement manipulation is not possible)

• Contradiction
Audit evidence that contradicts other audit evidence obtained.
o (E.g., Reconciliation given shows stock of 5,000 but insurance documents show
stock of 3,500)

• Beyond SAs
Circumstances that suggest the need for audit procedures in addition to those required by
the SAs.
o (E.g., SA 402 says rely on report if it is from Chartered Accountant, but we may not
rely because of bad past experience in other assignment)

The auditor shall plan and perform an audit with professional scepticism recognising that
circumstances may exist that cause the financial statements to be materially misstated.

➢ What if PS is not followed?
Maintaining professional scepticism throughout the audit is necessary if the auditor is, for
example, to reduce the risks of:
• Overlooking unusual circumstances.
o (E.g., % change in fuel consumption leads to discovery of fraud)

• Over generalising when drawing conclusions from audit observations.
o (E.g., Salary of one department was checked and it was declared salary of other 3
department would be same)

• Using inappropriate assumptions in determining the nature, timing, and extent of the audit
procedures and evaluating the results thereof.
o (E.g., Assuming that employees with more than 10 years with company are honest
hence no need to check sales executed by them)

The auditor may accept records and documents as genuine unless the auditor has reason to
believe the contrary.

The auditor cannot be expected to disregard past experience of the honesty and integrity of
the entity’s management and those charged with governance.

Nevertheless, a belief that management and those charged with governance are honest and
have integrity does not relieve the auditor of the need to maintain professional scepticism or
allow the auditor to be satisfied with less-than persuasive audit evidence when obtaining
reasonable assurance.

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