Audit Process and Documentation – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
State the general guidelines for preparing Audit Working Papers.
Answer:
Following are general guidelines for preparation of Audit Working Papers:

  1. The working papers must be in logical order.
  2. The working papers must be initialled and dated properly.
  3. The working papers must be kept at safe place.
  4. The working papers should be accurate and complete.
  5. The working papers must be legible.
  6. The working papers must be in summarized form of the results of work performed.
  7. The working papers must be easy to understand.
  8. The working papers must depict clear picture of work performed.

Question 2.
Explain the significance of Audit Working Papers?
Answer:
Following are significance of Audit Working Papers:

  1. Assisting the engagement team to plan and perform the audit.
  2. Assisting members of the engagement team responsible for supervision to direct and supervise the audit work and to discharge their review responsibilities.
  3. Enabling the engagement team to be accountable for its work.
  4. Retaining a record of matters of continuing significance to future audits.
  5. Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements.

Question 3.
What do you understand by Audit Programme?
Answer:
An audit programme is a set of instructions which are to be followed for proper execution of audit.

  1. The audit programme contains the measures that are generally employed to determine what, and how much evidence must be collected and evaluated.
  2. Audit programmes may be laid down in advance for the whole year for some aspects of the audit which auditor expects to be audited after regular intervals of time or when needed.
  3. Audit programme contains step by step instructions to be carried out by team members.
  4. Audit programmes are prepared on the basis of audit plan usually by the auditor who is signing the Audit Report of the company.

Question 4.
What is Audit Programme? State its advantages.
Answer:
“Audit Programme”:

  • An audit programme is a set of instructions which are to be fol-lowed for proper execution of audit.
  • The audit programme contains the measures that are generally employed to determine what, and how much evidence must be collected and evaluated.
  • Audit programmes may be laid down in advance for the whole year for some aspects of the audit which auditor expects to be audited after regular intervals of time or when needed.
  • Audit programme contains step by step instructions to be carried out by team members.
  • Audit programmes are prepared on the basis of audit plan usually by the auditor who is signing the Audit Report of the company.

Advantages of Audit Programmes:

  • It serves as a ready checklist of audit programme to be performed.
  • It is useful for the audit assistants in carrying the audit work but also for the principal too as he would be in a position to account for the individual responsibilities.
  • It is useful basis for planning the programme for the following year.
  • It is used as evidence by the auditor in the event when any charge is brought against him.
  • It is in uniformity of the work can be attained as the same programme would be followed from time to time.
  • The proper allocation to the audit assistants or the article clerks.
  • It is useful fonauditor for easily knowing the extent of work done at any point of time.

Question 5.
Explain the need of Audit Working Papers?
Answer:
The needs for working papers are:

  1. They aid in the planning and performance of the audit.
  2. They aid in the supervision and review of the audit work and to review the quality of work performed, in accordance with AAS 17 “Quality Control for Audit Work”.
  3. They provide evidence of the audit work performed to support the auditor’s opinion.
  4. They document clearly and logically the schedule, results of test, etc.
  5. The working papers should evidence compliance with technical standards.
  6. They document that internal control has been appropriately studied and evaluated.
  7. They document that the evidence obtained and procedures performed afford a reasonable basis for an opinion.
  8. They retain a record of matters of continuing significance to future audits of the entity.
  9. The process of preparing sufficient audit documentation contributes to the quality of an audit.
  10. They enable an experienced auditor to conduct quality control reviews in accordance with Statement on Peer Review issued by the Institute of Company Secretaries of India.

Question 6.
During the Secretarial Audit of the Company, auditors found various reports of expert. Some reports comprise technical details about the plant and project including assessment. Write the note on the reliability of the said reports.
Answer:
Dependence on the Report of Other Expert by the Secretarial Auditor:
Where the secretarial auditor is planning to use the work of an expert, the auditor should evaluate the professional competence of the expert. This will involve considering the expert’s professional certification or licensing by, or membership in, an appropriate professional body and experience and reputation in the field in which the auditor is seeking audit evidence.

For example, for building structure related compliance, a civil engineer is considered as the expert; for aviation related compliance, the aeronautical engineer is considered as expert and so on. The auditor should evaluate the objectivity of the expert. The risk that an expert’s objectivity will be impaired increases when the expert is employed by the entity or is related in some other manner to the entity.

Question 7.
Short Note on: “Execution of Audit”.
Answer:
“Execution of Audit”:
The Effective Audit Execution is based on the Audit plan and the efficiency of the Audit team and it covers the following actions:

  1. Sampling of various transactions or items.
  2. Sampling for testing of controls.
  3. Identification of events.
  4. Performing controls testing procedures.
  5. Performing analytical procedures.
  6. Sampling for substantive test of details.
  7. Performing substantive test of details.
  8. Review of working papers.
  9. Managements’ Discussion on Draft Report.

Question 8.
Short Note on: “Board Composition”.
Answer:
Board Composition: The Auditor should go through the following points while conducting the audit:
1. Board of directors:

  • Composition and category of directors (e.g. promoter, executive, non-executive, independent non-executive, nominee director, etc.
  • Attendance of each director at the meeting of the board of directors and the last annual general meeting.
  • Number of other board of directors or committees in which a directors is a member or chairperson.
  • Number of meetings of the board of directors held and dates on which held.
  • Disclosure of relationships between directors inter se.
  • Number of shares and convertible instruments held by non-executive directors.
  • Web link where details of familiarization programme imparted to independent directors is disclosed.

2. Audit Committee:

  • Brief description of terms of reference;
  • Composition, name of members and chairperson;
  • Meetings and attendance during the year.

3. Stakeholder Relationship Committee:

  • Brief description of terms of reference;
  • Meeting and attendance during the year;
  • Composition, name of members and chairperson;

4. Nomination and Remuneration Committee:

  • Brief description of terms of reference;
  • Composition, name of members and chairperson;
  • Meeting and attendance during the year;
  • Performance evaluation criteria for independent directors.

Question 9.
Difference between: Audit Plan and Audit Programme?
Answer:
Following are distinction between Audit Plan and Programme:
Audit Plan:
Audit Plan lays down the audit strategies to be followed for conducting an audit such as identifying the areas where special audit consideration and skills.necessary to obtain the knowledge of business etc.

Plan cover the following:

  • Acquiring knowledge of accounting systems, policies and internal control procedures.
  • Establishing the expected degree of reliance to be placed on the internal control.
  • Determining the nature, timing and extent of the audit pro-cedures to be performed.
    Co-ordinating the work to be done.

Audit Programme:
1. Audit programme is an outline of how the audit is to be done, who is to do what work and within what time.

2. It lays down the following audit procedure to be followed:

  • Evaluation process
  • Ascertaining accuracy
  • Verification of Document
  • Scrutiny of supporting Documents
  • Checking of overall disclosure and presentation of all items in the audit completion
  • Preparation and submission of audit report

Question 10.
What steps taken by company for ensuring the compliance of the applicable laws?
Answer:
Following steps to taken by company for ensuring the compliance of the applicable laws:
1. For ensuring the compliance of the applicable laws the company should have a documented inventory of every applicable law, regulation, contractual obligation and any other form of compliance requirement which needs to comply.

2. For ensuring the compliance of the applicable laws the company should publish its compliance policy which should be supported by standards, procedures, and guidelines.

3. For ensuring the compliance of the applicable laws the company should exchange e-mails with legal/compliance team, functional heads, compliance officers and others with information on compliance obligations and skills concerning compliance matters in the information security context.

4. For ensuring the compliance of the applicable laws the company should share related agendas, minutes or notes of meetings with those people on related matters.

5. For ensuring the compliance of the applicable laws the company should place Internal reports concerning applicable compliance obligations, ideally with evidence that management is actively engaged in assessing the extent to which compliance is needed and aware of the risks of non-compliance.

6. For ensuring the compliance of the applicable laws the company should conduct Compliance assessment/review/audit reports, noting the content, form, distribution, status.

Question 11.
List the items included in Working Papers.
Answer:
The working papers must include:

  1. Planning documents and audit programs.
  2. Internal control questionnaires, flowcharts, checklists and narratives.
  3. Notes and minutes resulting from interviews.
  4. Organizational data, such as charts with job descriptions, process chart.
  5. Copies of important documents.
  6. Information about operating and financial policies.
  7. Results of control evaluations.
  8. Letters of confirmation and representation.
  9. Analysis and test of transactions, processes.
  10. Results of analytical review procedures.
  11. Audit reports and management responses.
  12. Audit correspondence that documents the audit conclusions reached.

Question 12.
Write Short Note on: “Inclusion of Documents in Standard set of Working Papers”.
Answer:
A standard set of working papers will include at least the following documents:
General File:

  • The General File contains key information through the various phases of the audit including planning, reporting process, audit programs and comments for the next audit.
  • The General File will include the draft and final reports.
  • The Audit responses will also be included in the file.

Work paper File:

  • This file should contain the detailed audit procedures and detailed audit working, papers.
  • The detailed audit procedures provide detailed audit steps of the audit work to be performed during fieldwork that will achieve the specific audit objectives outlined in the audit program.

Future Audit Considerations:

  • Auditors are encouraged to develop and document future audit ideas during the course of their work.
  • For this inclusion of “comments for next audit” section of the general file.

Question 13.
Write Short Note: “Audit Trail”.
Answer:
“Audit Trail”:

  1. Audit Trail is a repository of administrative and operational documentation relating to audit process.
  2. Audit Trail is established and maintained to aid in audit planning and to centralize available documentation and information not included in the individual audit files.
  3. An index should be developed and placed in the front of the permanent file indicating the documents contained, date included in file and auditor’s initials.

Question 14.
Write Short Note: “Working Paper Review”.
Answer:
“Working Paper Review”:

  1. The auditor should review all audit review notes to be certain that all notes have been resolved within the working papers.
  2. The documentation obtained and not relevant to the audit should be returned/destroyed upon the completion of the audit.
  3. The Working Paper Review will consist of:
  4. Determining compliance with working paper guidelines.
  5. Reviewing the audit program that outlines the major objectives of the audit and ensure that the procedures accomplish the objective.
  6. Reviewing the audit procedures and the referenced working papers to ensure the working papers support the procedures performed and all procedures have been completed.
  7. Determine that the working papers adequately document the conclusions reached in the report.
  8. Ensuring that all findings prepared have been discussed with the appropriate member of management, and that the disposition of the audit concerned is documented.
  9. Documenting review notes.

Question 15.
Write Short Note: “Board Processes”,
Answer:
“Board Processes”:
1. To ensure the effective board processes the auditor should also observe the requirement of the secretarial standards during the Audit along with the

  • Disclosure,
  • Eligibility,
  • Level of expertise,
  • Involvement of the directors in decision making etc.

2. The Board of directors as an institution plays a prominent role in corporate governance. It is responsible for directing and overseeing the business and management of the company.

3. The role of the Board of Directors (BODs) are considered as fiduciaries in that they are required to act in the interest of various constituencies in a company such as shareholders and other stakeholders.

4. The Secretarial Standard-1 helps in providing clarity in certain areas where the law is either silent or ambiguous.

However, wherever the law is silent certain good governance practices have been recommended and where it is ambiguous, the standards try to bring in more clarity and
adhere the common board processes across country.

Question 16.
Write short note: “Audit Questionnaire”.
Answer:
“Audit Questionnaire”:
1. Questionnaire is a comprehensive series of questions concerning internal control.

2. Questionnaire is used for collecting information about following attributes of internal control in an organisation:

  • Existence,
  • Operation and
  • Efficiency.

3. An advantage of the Audit Questionnaire is that the oversight or omission of significant internal control review procedures is less likely to occur with this method.

4. With a proper questionnaire, all internal control evaluation can be completed at one time or in sections.

5. The questionnaire is annually issued to the client and the client is requested to get it filled by the concerned executives and employees.

6. The questionnaire form provides an orderly means of disclosing control defects.

7. It is the general practice to review the internal control system annually and record the review the detail.

8. Generally questions are so framed that a ‘Yes’ answer denotes satisfactory position and a ‘No’ answer suggests weakness in the Audit Questionnaire. In addition to this, the provision is made for an explanation or further details of ‘No’ answers. In respect of questions not relevant to the business, ‘Not applicable’ reply is given.

9. If on a perusal of the answers, inconsistencies or apparent incongruities are noticed the matter is further discussed by auditors with the client for a clear picture and accordingly the auditor prepares a report of deficiencies and recommendation for improvements.

Question 17.
List ten documents which should be placed in the Permanent File and Current File separately?
Answer:
Following Ten documents required to be placed in the Permanent File:
1. Statutory Documents.

2. The rules and regulations of the company:

  • Memorandum of Association.
  • Articles of Association.
  • Certificate of Incorporation/Commencement of Business.
  • Registration documents under various statutory bodies.

3. Copies of documents of continuing importance and relevance to the auditor:

  • Letter of engagement and Board Resolution for appointment of the auditor.
  • Record of communication with the retiring auditor.
  • Royalty Agreement/Technical collaboration.
  • Copies of important legal documents/contracts.

4. The Company’s registered office address and all other units/ premises, with a short description of the work carried on at such places.

5. An outline history of the organization.

6. Analysis of significant ratios and trends.

7. List of all holding, subsidiary and associate companies.

8. Notes on internal control with Details of study & evaluation of internal controls in the form of narrative record, questionnaires or flow charts etc.

9. List of books and records maintained by the company and place of their location. Names, positions, specimens of signatures and initials of persons responsible for books and document should also be included.

10. List of the company’s advisors such as bankers, merchant bankers, stockbrokers, solicitors, valuer, insurance brokers etc.

Following Ten documents required to be placed in the Current File:

  • Appointment letter for the Current Year, along with the defined scope of Audit.
  • Extracts of important board/management meetings.
  • List of responsible persons with their designation and contact details.
  • Secretarial Audit Report/Financial Audit Report for Current year as well as previous year.
  • Actions initiated by company towards Secretarial Auditor’s ob-servations and suggestions in previous years reports.
  • Audit Plan/Audit Program.
  • Current year’s Secretarial Records.
  • Communications with the company/management team.
  • Letters of representations, confirmations received from company.
  • Audit review points and highlights of analysis.

Secretarial Audit Compliance Management and Due Diligence ICSI Study Material