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Finiancial Attest Audit

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_______________________________________________________ ISSUED BY THE AUTHORITY OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIATable of Contents 1. Introduction Nature of financial (attest) audit Different types of auditee entities Statutory provisions Concepts and Overview Auditing Standards Audit objectives The general financial audit objectives (assertions in financial statements) Nature of assurance by the CAG of India Audit materiality Materiality by value Materiality by nature Materiality by context Materiality with regard to planning Reporting materiality Types of error Most likely error Precision Risk based audit approach Risk model Audit evidence Analytical procedures Systems based approach (SBA) Direct substantive testing (DST) approach Audit sampling Right of access to information Overview of the financial (attest) audit process Cash vs. accrual based accounts Audit certificate The audit opinion and basis of accounting Audit Planning Audit plan for the entire office Audit plan for individual financial (attest) audits Purpose of planning Planning process Understanding the entity and its operations



Preliminary analytical procedures Account areas Significant vs. non-significant audit areas Planning materiality Risk assessment Planning: considering the need for sampling techniques Use of VLC data in audit planning in case of State Government accounts Decision regarding the audit approach to be adopted Level of substantive procedures to be adopted Designing audit approach Performing the audit procedures at interim date Number of locations Role of internal auditors Classification of computer use Using services of outside experts Preparation of audit planning memorandum Preparation of detailed audit programmes Good communication with auditee entity Creation of data bank Planning in the case of State Government accounts Planning in the case of Union Government accounts Planning in the case of other entities 4. Field Audit Letter of understanding / audit engagement letter Entry conference Nature of evidence Obtaining audit evidence Use of interview for gathering evidence Audit testing Tests of control Substantive analytical procedures Tests of detail Sampling techniques for tests of detail Accounting estimates Investigating errors and control failures Auditors right of access to information Exit conference Updating the audit plan Documentation of field work Quality assurance in field work


Audit Completion Overall review of financial statements Review of subsequent events Going concern Management representation Summarising the audit Documentation Importance of adequate documentation Document files Submission of audit documentation for review and accounts for certification Broad characteristics of working papers Use of electronic documentation Quality assurance Annexe 1 Layout of working papers Annexe 2 Account area lead schedule Annexe 3 Summary of matters for attention Reporting Opinion and basis of accounting Format of certificates Unqualified opinion Qualified opinion Corresponding amounts from preceding periods Signing and dating Place for the certificate while printing Management letters Confidentiality of communication Submission of audit reports Annexe: Illustration on qualified opinion due to likely aggregate error crossing the materiality threshold




Supervision and review Supervision Review Quality assurance for supervision and review Quality assurance Requirement of auditing standards Quality assurance and quality control Quality assurance system in the Department


Quality assurance review programme Annual training and professional development programme Annexe: Review Sheet Some issues of audit interest Using the work of other auditors and specialists Using the work of internal auditors Using audit certificates supporting grant and subsidy payments Using the work of specialists Opening balances and comparatives Other information published with financial statements Forewords to accounts Position of audit in relation to fraud Financial (attest) audit in different auditee entities Different types of auditee entities Accounting environment Financial (attest) audit of accounts of State Governments Financial (attest) audit of accounts of Union Government Financial (attest) audit of accounts of autonomous bodies Financial (attest) audit of accounts of Government Companies and Corporations Financial (attest) audit of externally assisted projects Technical procedures Format of audit certificates 12. Organisational arrangements Responsibility for financial (attest) audit Responsibility for audit of entities of State Governments Responsibility for audit of entities of Union Government Liaison with other sub auditors at the audit planning stage Cell on financial (attest) audit Summary of issues Planning for financial audit in the context of Government Accounts Financial (attest) audit in IT environment Glossary Some common abbreviations



13. Appendix I Appendix II

Chapter 1 Introduction1.1 The present Manual contains a framework for the process of financial (attest) audit within the Indian Audit and Accounts Department headed by the Comptroller and Auditor General (CAG) of India. It indicates the best practices to be followed in planning, execution and reporting processes in financial (attest) audit. 1.2 The Manual is based on the existing instructions within the Indian Audit and Accounts Department, Auditing Standards of the CAG of India and the best practices of the Supreme Audit Institutions (SAIs) of other countries. The Manual also seeks to incorporate the international best practices in respect of financial (attest) audit with the objective of bringing the Indian practice at par with the international best practices, as far as applicable in the context of the Indian Audit and Accounts Department. Nature of Financial (attest) audit 1.3 Financial (attest) audit is primarily concerned with expression of audit opinion on a set of financial statements. It includes: examination and evaluation of financial records and expression of opinions on financial statements; audit of financial systems and transactions including an evaluation of compliance with applicable statutes and regulations which affect the accuracy and completeness of accounting records; and audit of internal control and internal audit functions that assist in safeguarding assets and resources and assure the accuracy and completeness of accounting records. 1.4 The audit responsibilities of the CAG of India (CAG) are wider than providing opinion on the financial statements of Government and extend to examination of risks to regularity, propriety and financial control. A significant portion of the audit work presently carried by CAG is termed transaction audit which essentially seeks to address the issues of risks to regularity, propriety and financial control. 1.5 Whereas the opinion on financial statements provides a positive annual assurance on the financial statements to the Parliament or Legislature, examination of risks to regularity, propriety and financial control (generally referred to as transaction audit in the Indian Audit and Accounts Department) is not linked to a specific assurance on an individual set of financial statements in a particular year. It does not result in a formal audit opinion on financial statements but rather in reports either to management or Parliament or Legislature;

It focuses on the Government Department or its units rather than on the financial statements; It does not cover all the units of Government Departments every year, but seeks to cover them over a period of time; It seeks to cover risks of significant irregularity, which may not be material for the purpose of qualifying audit opinion on the financial statements. Different types of auditee entities 1.6 The Indian Audit and Accounts Department carries out financial (attest) audits of the following entities resulting in certification of financial statements as well as preparation of separate audit reports on transactions and accounts of the entities. Entity Union Government Union Territory Governments State Governments Autonomous Bodies Statutory Corporations Government Companies Types of Financial Statements audited Finance Accounts; Appropriation Accounts Finance Accounts; Appropriation Accounts Finance Accounts; Appropriation Accounts Balance Sheet; Income and Expenditure Account / Revenue Account Balance Sheet; Profit and Loss Account/ Revenue Account Balance Sheet; Profit and Loss Account (This is a supplementary audit after the work of the Statutory Auditor is completed and comments of CAG, if any, are issued; audit certificate is given by the Statutory Auditor, ) Statements of Expenditure relating to Projects aided by World Bank

World Bank Aided Projects

1.7 In case of Government Companies, the financial (attest) audit is carried out by Chartered Accountants (Statutory Auditors) appointed by the CAG in accordance with the provisions of the Companies Act, 1956. The CAG carries out a supplementary audit and comments, if any, are issued. The audit opinion is issued by the Statutory Auditors. This is covered in more detail in Chapter 11 of the Manual. 1.8 Separate instructions are available in respect of the financial (attest) audits of entities like Autonomous Bodies, Statutory Corporations and Government Companies and Externally Assisted Projects, which may be updated from time to time. However, the provisions in this Manual are generally applicable for any kind of financial (attest) audit and may be suitably adapted for audit of these entities. The provisions in this Manual are also applicable irrespective of the basis of accounting (cash or accrual). 1.

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