In the simplest terms, auditing standards represent a codification of the best practices in the field of auditing. Auditing Standards are therefore, the performance benchmarks for the auditor. Auditing Standards for the professionals on how they should carry out their professional engagement, enshrined as the basic principles and essential procedures to apply those basic principles that relates to judgment or behaviour. The objective of the auditing standards is to a large extent serving the public interest.
Need for Auditing Standards
Formulation of Auditing Standards worldwide, including India, entails consideration of important factor’s such as existing and accepted auditing practices in auditing, existing laws and regulations, usage and customs of trade and commerce, fundamental financial reporting principles, expectation of society from the auditor, Auditing standards therefore play critical role in
- Ensuring application of accepted financial reporting standards thereby lending credibility and wider acceptability to the financial statements.
- Providing benchmarks against which the performance of the members can be measured and evaluated at global level also.
- Ensuring compliance with the applicable legislative and regulatory framework.
- Ensuring right approach of the professionals in complex/emerging areas of audit.
- Ensuring consistency and quality in the work performed by the professionals.
The Auditing Standards therefore are an important instrument for bring the expectation gap between the society and the Auditor.
Features of an Effective Auditing Standards
- Principle Based
- Easy to Understand
- Universal Acceptance
- Flexibility for Application
- Amenable to Enforcement
Auditing Standard – setting in India
The auditing standards in India are formulated by the Auditng and Assurance Board (AASB) of the ICAI. This Standards formulated by the AASB are issued under the authority of the Council of the Institute and are mandatory in nature. This implies that while carrying out their attest functions, it will be the duty of the members of the Institute to comply with these Standards. If for any reason a member has not been able to perform an audit in accordance with the applicable Standards, his report should draw attention to the material departures therefrom.
The Revised Preface
The Auditng profession in Indi too, which is looking forward to be reckoned among the best in the world and be accepted globally, this necessity comes as a necessary unavoidable. The AASB, as a top priority, has taken on the ambitious project of convergence with the International Standards issued by the International Auditng and Assurance Standards Board. As a first step towards convergence, it has, after going through its rigorous due process, in July 2007 published the Revised Preface of SQC, Auditing, Review, Other Assurance and Related Services, corresponding to its namesake issued by the IAASB in 2006. The Revised Preface, applicable from the April 1, 2008, has changed the face of the auditing literature, introducing some more fundamental concepts to the existing ones. The following paragraphs give a gist of the significant provisions of the Revised Preface.
Hitherto all the Auditing Standards issued by the AASB were known as the Auditing and Assurance Standards. The Revised Preface categorized and christens the Standards based on the nature of services being provided by a member. It therefore, introduces an umbrella concept of Engagement Standards. The terms “Engagement Standards”comprise the following Standards – (a) Standards on Auditing (SAs), to be applied in the audit of historical financial information. (b) Standards on Review Engagements (SREs), to be applied in the review of historical financial information. (c) Standards on Assurance Engagements (SAEs), to be applied in assurance engagements, other than historical financial information. (d) Standards on Related Services (SRSs), to be applied to engagements involving application of agreed- upon procedures to information, compilation engagements, and other related services engagements, as may be specified by the ICAI.
The Revised Preface therefore, does away with the nomenclature “Auditng and Assurance Standards”. It contains provisions for Standards, to be known as the Standards on Quality Control (SQCs), which would be fundamental to all the services covered by the Engagement Standards.
Standards on Auditing
The Standards on Auditing (SAs) are formulated in the context of an audit of Financial Statements by an Independent Auditor. They are to be adapted as necessary in the circumstances when applied to audits of other historical Financial Information
New Format of Presenting the Standards on Auditing
In line with the format adopted by the IAASB under its Clarity Project, the Revised Preface provided that instead of a running text, the Standards on Auditing would now contain TWO distinct sections, ONE the Requirements Section and, Other one , The Application Guidance Section.
The Fundamental Principles of the Standard are contained in the Requirements section and represented by use of “SHALL”. Hitherto the word, “SHOULD” was used in the Standards, for this purpose. Further, this format also does away with the need to present the principles laid down by the Standards in bold text.
The application and other explanatory material contained in an SA are an integral part of the SA as they provide further explanation of, and guidance for carrying out, the requirements of an SA, along with the background information on the matters addressed in the SA. These may include examples of procedures, some of which the auditor may judge to be appropriate in the circumstances. Such guidance is, however, not intended to impose a requirement. The Revised Preface also contains the principles as to when a SA would be inapplicable as also the reporting responsibilities of the members in case of non compliance with any of the Standards.
The Revised Preface also contains the authority attached to various documents issued by the Council or the AASB under the authority of the Council of the Institute, viz., Standards, Statements, Guidance Notes, General Clarifications, Studies, etc.
Numbering of Standards
The provisions of the Revised Preface, coupled with the difficulties otherwise being faced by the Board in writing Standards on the conventions followed by the IAASB, necessitated the need to adopt a new numbering pattern for the auditing standards. Whereas hitherto the auditing standards have categorized on the basis of the specific aspect of audit that they deal with and accordingly allotted the numbers from that category. These categories are as follows –
|1||Standards on Quality Control||01 – 99|
|2||Introductory Matters||100 – 199|
|3||General Principles and Responsibilities||200 – 299|
|4||Risk Assessment and Responses to Assessed Risks||300 – 499|
|5||Audit Evidence||500 – 599|
|6||Using Works of Others||600 – 699|
|7||Audit Conclusions and Reporting||700 – 799|
|8||Specialised Areas||800 – 899|
|9||Standards on Review Engagements||2000 – 2699|
|10||Standards on Assurance Engagement||3000 – 3399|
|11||Subject Specific Standards||3400 – 3699|
|12||Standards on Related Services||4000 – 4699|