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Auditing is the process of providing assurance about the reliability of the information
contained in a financial statement prepared in accordance with generally accepted

accounting principles or other rules. The financial statements are first and foremost the
responsibility of the management of the reporting entity. But the independent auditor
plays a crucial role in financial reporting. Users of financial statements expect external
auditors to bring to the reporting process technical competence, integrity,
independence and objectivity
Definition of an audit
An audit of historical financial statements has been defined as a systematic process of
objectively obtaining and evaluating evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between those assertions and
established criteria, and communicating the results to interested parties. It is a form of
attestation service in which the auditor issues a written report expressing an opinion
about whether the financial statements are in material conformity with generally accepted
accounting principles or other recognized criteria. The fundamental aspects of the objectives
of financial statements in the context of providing the users with sincere financial
information about the entity, and consequently the audit of such statements, remain
unchanged in spite of the significant changes that have taken place in the business
environment and financial markets.
The main objective of an audit of financial statement is to enable the auditor to express an
opinion on whether the overall financial statements (the information being verified) are
prepared, in all material respects, in accordance with an identified financial reporting
framework. Normally, this framework can be defined as the generally accepted accounting
principles (GAAP) such as the US GAAP or the equivalents in other countries. The
International Financial Reporting Standards (IFRSs) issued by the International Accounting
Standards Board (IASB) can also be considered for this purpose. The financial statements
most often included are the statement of financial position, income statement and
statement of cash flows, including accompanying footnotes. The phrases used to express the
auditor’s opinion are ‘give a true and fair view’ or ‘present fairly, in all material respects,’
which are equivalent.
Objectives of Audit
Primary Objective
(AAS – 2)
Expression of Opinion on True & Fair view of Consideration of Risk of Material
Misstatements
Secondary Objective (AAS – 4)

Financial Statements resulting from Fraud and Error Basic Principles
Governing and Audit (AAS – 1, SA 200):
General principles of audit
1. Integrity, Objectivity and Independence

2. Confidentiality
3. Skills and Competence
4. Work performed by others
5. Documentation
6. Planning
7. Audit Evidence
8. Accounting Systems and Internal Controls
9. Conclusion and Reporting
AUDITOR’S INDEPENDENCE: independence implies that the judgement of a

person is not subordinate to the wishes or directions of another person who
might have engaged him. It stipulates that the independence is a condition
of mind and personal character and should not be confused with the visible
standards of independence.
Visibility: “Independence of auditors must not only exist infact, but should
also ppear to exist to all reasonable persons”.
Objective: The main objective of an independent audit is to lend credibility to
financial information contained in financial statements by expressing an
independent opinion.
MATERIALITY:
AS-1 - Material items are “items, the knowledge of which might influence the
decisions of the users of the financial statements. As per AAS-13 information
is material if its misstatement could influence the economic decisions of
users taken on the basis of the financial
information.
Factors influencing materiality:

Materiality may be influenced by
• _ Legal and regulatory requirements
• _ Considerations which may have a significant bearing on the financial
information, and
• _ Considerations relating to individual account balances and
relationships.
TRUE AND FAIR VIEW

• _ The phrase “true and fair” in the auditor's report signifies that the
auditor is required to express his opinion as to whether the state of
affairs and the results of the entity as ascertained by him in the course
of his audit are truly and fairly represented in the accounts under
audit.
• _ What constitutes “true and fair” has not been defined in the
legislation.
• _ In specific terms to ensure truth and fairness, an auditor has to see:
(i) that the assets and liabilities are neither undervalued or overvalued;
(ii) the charge on assets, if any, is disclosed;
(iii) accounting policies have been followed consistently;
(iv) all unusual, exceptional, non-recurring items have been disclosed
separately;
(v) accounts have been drawn as per requirement of Schedule VI to the
Companies Act & AS.
AUDIT EVIDENCE (AAS – 5)

Meaning: any information, verbal or written obtained by the auditor on which
he bases his opinion
Objective: Audit evidence is one of the basic principles and requires that the
auditor should obtain sufficient and appropriate audit evidence through the
performance of compliance and substantive procedures to enable him to
draw reasonable conclusions therefrom on which to base his opinion on the
financial statements.
Sufficient and Appropriate Audit Evidence:
Sufficiency of evidence refers to quantum of evidence;

and appropriateness refers to relevance and reliability.
Types of Audit Evidence:

Depending upon its source, may be classified as: Internal, and External.
Depending upon nature, may be classified as: Visual, Documentary, and
Oral Evidence
Reliability of Audit Evidence:

(a) External evidence is usually more reliable than internal evidence.
(b) Internal evidence will be more reliable, when related internal controls are
satisfactory
(c) Evidence obtained by the auditor himself is more reliable than evidence
obtained from entity.
(d) Documentary evidences are more reliable than oral representations.
AUDIT TECHNIQUES methods and means adopted by an auditor for collection

and evaluation of audit evidence in different auditing situations. For
Example: physical examination, confirmation, inquiry, calculation of ratios;
etc.
AUDIT PLANNING:
Scope of Audit Planning: Plans should be made to cover, among other things
the followings:
Acquiring knowledge of client s business;
Establishing the expected degree of reliance to be placed on internal
control;
Determining the nature, timing and extent of the audit procedures to be
performed;
Coordinating the work to be performed
Objectives of Audit Planning: Adequate audit planning facilitates:

Devoting appropriate attention to important areas of the audit;
Prompt identification of potential problems;
Expeditious completion of work;
Proper utilization of assistants;
Coordination of work done by other auditors & experts
Documentation of Audit Plan: The auditor should document his overall plan.
And develop the audit Programme.
Audit Principles in Public Sector
1. Irrespective of whether an audit is being conducted in the private or public sector, the
basic principles of auditing remain the same. What may differ for audits carried out in the
public sector is the audit objective and scope. These factors are often attributable to
differences in the audit mandate and legal requirements or the form of reporting (for
example, public sector entities may be required to prepared additional financial reports).
2. When carrying out audits of public sector entities, the auditor will need to take into
account the specific requirements of any other relevant regulations, ordinances or
ministerial directives which affect the audit mandate and any special auditing requirements,
including the need to have regard to issues of national security. Audit mandates may be
more specific than those in the private sector, and often encompass a wider ranged of
objectives and a broader scope than is ordinarily applicable for the audit of private sector
financial statements. The mandates and requirements may also effect, for example, the
extent of the auditor’s discretion in establishing materiality, in reporting fraud and error, and
in the form of the auditor’s report. Differences in audit approach and style may also exist.
However, these differences would not constitute a difference in the basic principles and
essential procedures.
The basic principles for auditing standards are basic assumptions, consistent premises, logical principles and
requirements which help in developing auditing standards and serve the auditors in forming their opinions and
reports, particularly in cases where no specific standards apply.
Auditing Standards should be consistent with the principles of auditing. They also provide minimum guidance for
the auditor that helps determine the extent of auditing steps and procedures that should be applied in the audit.
Auditing Standards constitute the criteria or yardstick against which the quality of the audit results are evaluated
C&AG
VISION
The vision of SAI India represents what we aspire to become: We strive to be a global leader and initiator of national and
international best practices in public sector auditing and accounting and recognised for independent, credible, balanced and
timely reporting on public finance and governance.
MISSION
Our mission enunciates our current role and describes what we are doing today: Mandated by the Constitution of India, we
promote accountability, transparency and good governance through high quality auditing and accounting and provide
independent assurance to our stakeholders, the Legislature, the Executive and the Public, that public funds are being used
efficiently and for the intended purposes.
CORE VALUES
Our core values are the guiding beacons for all that we do and give us the benchmarks for assessing our performance
• • Independence
• • Objectivity
• • Integrity
• • Reliability
• • Professional Excellence
• • Transparency
• • Positive Approach
I am of the opinion that this dignitary or officer (C&AG) is probably the most important
officer of the Constitution of India. He is the one man who is going to see that the
expenses voted by parliament are not exceeded, or varied from what has been laid down
by Parliament in what is called appropriation Act. If this functionary is to carry out the
duties- and his duties, I submit are far more important than the duties than the duties of
the Judiciary. Dr B R Ambedkar

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Auditing is the process of providing assurance about the reliability of the information

contained in a financial statement prepared in accordance with generally accepted

Secondary Objective (AAS – 4)

General principles of audit

1. Integrity, Objectivity and Independence

AUDITOR’S INDEPENDENCE: independence implies that the judgement of a

Factors influencing materiality:

TRUE AND FAIR VIEW

AUDIT EVIDENCE (AAS – 5)

Sufficient and Appropriate Audit Evidence:

Sufficiency of evidence refers to quantum of evidence;

Types of Audit Evidence:

Reliability of Audit Evidence:

AUDIT TECHNIQUES methods and means adopted by an auditor for collection

Objectives of Audit Planning: Adequate audit planning facilitates:

Audit Principles in Public Sector

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