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statutory audit???

Rahulsgupta (40 Points)

10 May 2007

doing a statutory audit is full of risk????

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9 Replies

theone (55 Points)
Replied 10 May 2007

The One Says:

If fact my friend I would say there is least risk in performing a Statutory Audit since the guidelines in the Companies Act, Accounting Standards, Audit & Assurance Standards and CARO are adequately, elaborately and perfectly laid out.

Consider the converse situation in something like a Management Audit, Operations Audit or Internal Audit and you will agree with what I say. The whole point of view, responsiblity and attitude of the Auditor is differernt in case of these audits as compared to the Statutory Audit.

Anyway why do you say its full of risk what are you reasons.........

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Rahulsgupta (40 Points)
Replied 10 May 2007

hey friend!
i just asked the question!
however a doubt still arises that doing a statutory audit involves the procedures laid down by the respective statute. so if that regulations or ligitation or legislation is not followed properly it would create liability on auditor!
so i was in doubt of that but ur point is also valid and could be included in my answer!
thanx

theone (55 Points)
Replied 10 May 2007

The One Says:

When procedures laid down as per the statue are not followed the auditor must include in his report reasons why the procedures were not followed. Where is the risk I fail to understand ..........

If you mean that the Auditor may be held liable because a fraud is detected in the future then, you are mistaken since any audit cannot and will not provide a 100% guarantee. Also every audit report includes this fact in the form a statement in the introduction " ...... financial statements are the responsibility of the management..."; " .... an audit involves examination a test basis .... "; etc.

Hope this solves your dilemma.

Muktha (13 Points)
Replied 10 May 2007

Why do u feel that it is riskier??? 8) Its a statutory requirement & auditors should do the audit accordingly....... :)

theone (55 Points)
Replied 10 May 2007

The One says:

My collegue Muktha do you disagree with any of my answers? I think I have covered all the scenarios here.........

Please add you insights in addition to your queries (would make for a better discussion :) )

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Rahulsgupta (40 Points)
Replied 10 May 2007

hey frnd!
there was a case law of THE LEEDS ESTATE BUILDING AND INVESTMENT COMPANY V. SHEPHERD(1887) which held the auditor personally liable as his performance did not comply with the statutory requirements. the statements were prepared by the management and examined by the auditor. the statements were so made as to enable the co to declare dividend out of capital which the directors did not known. the auditor said that he belived in management and did not examined statements and approved the same to be free from fraud and error.
so my doubt arised!!!!!!

theone (55 Points)
Replied 10 May 2007

The One Says:

The auditor usually obtains a "Management Representation Letter" so that it is ascertained what are the Management assertions and so that the Management understands what its responsibilities are. Also the Auditor obtains an "Engagement Letter" to define the scope of Audit.

Further the Auditor must conduct his audit in such a manner that the conclusion that he derives from the Audit would be the same as any prudent Auditor would derive. Where he has conducted Audit which fulfills all statutory norms and used due diligence and professional competance he would not be guilty of professional misconduct. An Audit is not conducted to uncover frauds. It is to determine the true and fair nature of the financial records ..... in the process if any fraudulent activities are discovered the Auditor is duty bound to disclose them. Re.: Kingston Cotton Mills Case it was held by Lord Justice Lopes that the "[b]the auditor is a watchdog not a bloodhound[/b]"

Hope this is help.........