A/U1 Topic 7 Consideration for commencing an audit
In the case of a company, see that the appointment of the auditor is legally valid according to provisions of the Companies Act, verify records of the company and obtain certified true copies of resolution of the Board or of shareholders, as the case may be, convey acceptance of appointment to the Registrar of Companies and notify the previous auditor, if any, about the appointment.
If the new auditor is appointed due to – (i) Resignation of or unwillingness of the previous auditor to be reappointed, the latter may send a communication to the board of director or (ii) Non-appointment of the outgoing auditor though willing, he may send a representation to the management of the company for circulation to the shareholders.
In both cases, the new auditor must obtain copy of the said communication or representation and consider the same before accepting the appointment. In other cases, make sure of formal appointment clearly setting out the scope and nature of work.
Ascertain from relevant statutes or from instructions received the scope of work and nature of duties.
Inspect the various legal documents relating to the business as may be applicable, e.g., memorandum and articles of association, special Acts of Parliament, deed of partnership, will, trust deeds, letters of administration, contracts and agreements etc., and make notes of important provisions that may have some bearing upon the audit.
Ascertain the general nature of the business and also its technicalities and peculiarities so as to be able to appreciate the nature of transactions that may take place in that business.
Obtain a list of all books and of persons in charge of them and also a list of superior officials together with their specimen signatures or initials.
Thoroughly examine the system of accounting as well as the nature and extent of internal control and internal check on which will depend the scope of the audit work.
In the case of an established business examine final accounts and auditor’s report relating to the previous year.
Refer to the previous year’s working papers, if any, and prepare a suitable audit programme.
Send advance information to the clients’ office to prepare for the audit, in particular to ensure that postings, castings and balancing of books are completed and they are inked-up, vouchers are serially arranged and filed, lists of balances and draft final accounts with annexure and schedules are made available and suitable working space is arranged. Also ask the clients to provide suitable physical facilities including space, furniture etc. for the audit work.