Essential qualities of an auditor [Auditing Notes BCOM]

Before beginning the audit work, an auditor must review the various arrangements with his client to decide his future course of action. Usually, the following point must be considered in this connection.

1.       The Client: An auditor must know about his appointee will in advance.

(a)    Whom to report? And

(b)    Who will pay his fees?

Sometimes the client may be a dissatisfied shareholder, member or a banker or the government or some other person and not the person whose accounts he is auditing.

2.       Scope of Duties: the auditor should ascertain the scope of his duties and responsibilities from statues, or from the instructions received from those employing his services. If he is appointed under any statue, his duties and responsibilities are enumerated under it and cannot be contracted. However, they may be increased by an agreement between the client and the auditor. The auditor’s duties and responsibilities are determined by reference to terms of agreement entered into between him and his client, who may be partners in a firm or a sole trader. He has no statutory obligation to comply with. He has only to carry out the instructions he receives from his clients. The dividing line between accountancy and audit work is sometimes so uncertain, that it is always proper for the auditor to ascertain what exactly his client requires. He should check that this is formulated in writing especially where accountancy work is also involved. The scope of auditor’s duties is also affected by the purpose for which the audit is to be made.

3.       Period to be covered: The auditor should ascertain the period to be covered in the audit. Usually the period is one year, but the period may be more or less than one year if conducted for a specific purpose.

4.       Use of client’s staff: The auditor may have his own staff or may take the assistance of his client’s staff where some clerical work is also to be performed. He should know whether he can use the client’s staff as per agreement.

5.       Place of Audit Work: The auditor should know the place of his work. This place is where he will open his office with his staff and conduct his enquiries. Regarding working conditions proper arrangement must be made with the client as it is in the interest of effective conduct of his audit work.

6.       Review of Business: This includes the review of the following:

(a)    Nature of Business.

(b)    Organisation of Business.

(c)     Basic Documents of the Business.

(d)    Accounting Frameworks.

(1)    Previous Accounting Records and Balance Sheets.

(2)    Additional Accounting work.

(3)    Basic Accounting Policies.

(4)    Various Control Systems.

7.       Clarification: The auditor should clear the following points with the client:

(a)    The confirmation of receivable;

(b)    The time of starting the examination;

(c)     Fees to be charged;

(d)    The preparation of tax returns;

(e)    Whether or not the client’s records are to be closed prior to the start of the examination.

Note that if the audit is a repeat engagement, work papers and correspondence of prior years should be reviewed.

Also Read: Auditing Important Topics for Upcoming Exams