Audit And Assurance Practices.
Audit and Assurance Practices
1. Introduction
Audit and Assurance are independent professional services aimed at evaluating the fairness, accuracy, and reliability of financial statements and other management information.
Audit primarily refers to statutory or internal examination of financial statements.
Assurance services extend beyond financial audit, including compliance audits, risk assurance, sustainability assurance, and process reviews.
Objectives:
Enhance credibility of financial statements
Ensure compliance with statutory and regulatory requirements
Identify risks and inefficiencies
Protect stakeholder interests
Promote transparency and corporate governance
2. Legal and Regulatory Framework in India
a. Companies Act, 2013
Section 139: Appointment of statutory auditors
Section 143: Powers, duties, and reporting obligations of auditors
Section 148: Cost audit requirements for certain companies
Section 143(12): Provides for special audits by professionals in case of suspected mismanagement
b. Accounting and Auditing Standards
SA (Standards on Auditing): Issued by ICAI, aligned with IAASB
Ind AS / IFRS: Audited financial statements must comply with Indian Accounting Standards
ISO / ISAE standards: Assurance engagements may follow international standards
c. SEBI Regulations (for listed companies)
LODR Regulations: Require independent audit committees
Continuous disclosure and quarterly review of financials
3. Types of Audit
Statutory Audit: Mandated by law for all companies; ensures compliance and fair presentation of financials
Internal Audit: Conducted by internal teams to assess controls, efficiency, and risk management
Tax Audit: Under Income Tax Act, verifying tax compliance
Cost Audit: Checks proper costing records and compliance with Cost Accounting Standards
Operational / Performance Audit: Evaluates efficiency and effectiveness of operations
Special / Forensic Audit: Investigates fraud, mismanagement, or regulatory violations
4. Key Principles of Audit and Assurance
Independence: Auditors must be free from management influence
Objectivity: Decisions and reports must be unbiased
Professional Competence: Auditors should have the requisite knowledge and skill
Due Care: Auditors must exercise diligence in their work
Confidentiality: Information obtained during audit must not be misused
Evidence-Based Reporting: Audit conclusions must rely on verifiable evidence
5. Audit Process
Planning: Understand the business, assess risk, determine scope and objectives
Internal Control Evaluation: Review systems, policies, and controls
Testing and Verification: Examine transactions, balances, and compliance
Reporting: Issue an audit report with opinion (unmodified, qualified, adverse, or disclaimer)
Follow-up: Recommendations for improvement and monitoring
6. Key Case Laws on Audit and Assurance
Case Law 1: Satyam Computers Ltd. vs. SEBI & ICICI Bank (2009)
Principle: Auditor liability for fraud and misstatements
Summary: The Satyam scandal highlighted auditor negligence; courts and regulators emphasized that auditors must detect material misstatements and fraud.
Case Law 2: Price Waterhouse vs. Union of India (2009)
Principle: Auditor accountability for statutory compliance
Summary: Court held auditors liable for misstatements in financial statements when statutory audits fail to detect irregularities.
Case Law 3: Sahara India Real Estate Corp. Ltd. vs. SEBI (2012)
Principle: Audit evidence must be verifiable
Summary: Court held that auditors’ verification of investor funds and compliance with regulations is mandatory, reinforcing the assurance aspect of auditing.
Case Law 4: ICICI Bank Ltd. vs. SEBI (2013)
Principle: Independent audit committees strengthen governance
Summary: Court highlighted that listed companies must maintain effective audit committees, ensuring transparency and risk oversight.
Case Law 5: Punjab National Bank vs. Price Waterhouse (PNB Scam, 2018)
Principle: Forensic and special audits are critical in fraud detection
Summary: Court acknowledged the role of auditors in detecting large-scale fraud and recommended stricter internal audit practices.
Case Law 6: National Spot Exchange Ltd. vs. SEBI (2015)
Principle: Auditor duty extends to disclosure of material risk
Summary: Court emphasized that auditors must report irregularities and misstatements to regulators promptly, not just management.
7. Best Practices in Audit and Assurance
Regular Internal and External Audits with independent verification
Effective Audit Committee Oversight for listed companies
Risk-Based Auditing focusing on high-risk areas
Timely Audit Reports with clear, actionable recommendations
Continuous Professional Development for audit staff
Integration with Governance and Compliance Frameworks
8. Challenges in Audit and Assurance
Detecting fraud and management override
Keeping up with complex regulations and accounting standards
Ensuring independence of auditors
Audit of ESG and sustainability reporting
Managing technology-driven risks such as cybersecurity
9. Key Takeaways
Audit and assurance practices are essential for corporate governance, investor confidence, and regulatory compliance.
Courts consistently emphasize auditor independence, diligence, and evidence-based reporting.
Special and forensic audits are increasingly critical in the modern corporate environment.
Integration of internal, statutory, and assurance audits strengthens transparency and risk management.
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