As per SA 200, Basic Principles Governing an Audit, issued by the Institute of Chartered Accountants of India (ICAI), an audit is the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.
Audit is designed to reduce the possibility of a material misstatement in the financial statement of any entity not being detected. Financial audits exist to add credibility to the implied assertion by an organization`s management that its financial statements fairly represent the organization`s position and performance to the company`s stakeholders (interested parties). The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in ensuring that the financial statements are accurate.
Engineering is the application of scientific, economic, social, and practical knowledge in order to design, build, and maintain structures, machines, devices, systems, materials and processes. It may encompass using insights to conceive, model and scale an appropriate solution to a problem or objective. The discipline of engineering is extremely broad, and encompasses a range of more specialized fields of engineering, each with a more specific emphasis on particular areas of technology and types of application.
SAP or Other ERP is based on Financial Engineering basis which mould our financial data and prepared a report for financial decision and can be used in finalisation of Balance Sheet. Hence we can say audit should be done with the engineering mind set.
In other term engineering include compilation of different knowledge which is applicable to main target or goal.
In Today’s Scenario Doing an effective audit required a combination of Knowledge and practical Experience. Which are based on day to day updates whether it may be Corporate or Legal Compliance. We have already knows different types of Audit such as Statutory Audit, Internal Audit, Management Audit, forensic Audit, System and Process Audit. Some are covered under Company Act 2013 in different sections such as Statutory and Internal Audit. Now the point is whether Statutory Auditor should have knowledge of Internal Audit and other’s Audits as explained above. Most of our professional colleague may or may not agree because they may argue that it’s not required, but practically it has been seen that Statutory Auditor should have Overall knowledge of all areas (Others Audit) so that he or she can give a fair professional view.
As per the Sec-138 of Company Act 2013 an Internal Audit now can be done by different ‘s professionals such as CA, CS, CMA and other’s professionals to whom management feel fit to do so, hence time has come where we have required a deep knowledge & practical based experience.
Whenever if any fraud happened within the Company, Statutory Auditor come in to the picture and so many question asked which are related to System and Process or weak Internal Control or different law compliances. Hence being an independent Auditor he should scale up his knowledge time to time. Now Company’s Act 2013 include Sec-134 which is related to Internal Financial Control (IFC) on which Statutory Audit should give comment on it.
Practically we have seen there is knowledge Gap between required knowledge and available Knowledge and most of the professional colleague ignore and not update themselves timely.
Applicable Accounting Standards and its important paragraphs some time skip before finalisation of Statutory Audit. Related Parties Disclosure is a very important area’s which should be cross verify from TP study (if applicable) and same as Service tax, VAT Audit or Compliance also need to verify. In addition to FEMA & RBI compliance also need to cross checked.
Now time has come being an Auditor’s we should have a required Knowledge almost for all areas so that key points should not ignored or Skip. Most of the professional colleague when do NBFC Company Audit they only check Company ACT and CARO requirement and forget to check NBFC Compliances which also need to check, hence in my view we should have a sufficient knowledge about different applicable Law and Compliance.
We should have a continuous training for SAP or other ERP so that we can analysis a detailed financial traffic from the IT tools. We should change our methodology and approach for doing effective audit and should drop down old approach. Because Company Act 2013 and IFC change our thinking pattern and demand from us to do audit with an Engineering concept hence a new concept can be introduced and name can be “Audit Engineering”.
Audit Engineering can be understand as a connecting the different Dots, and integrate the different knowledge whether it can Statutory, Internal, Management, System and Process and Forensic Audit.
It is a new concept which can pool knowledge from different source whether it may be from human mind or Book available.
Author: Satyendra Srivastava - Director (Audit & Risk), S.S.Kothari Mehta & Co.
Views expressed herein are personal.