- Define Audit with its essential features .
Audit is written report on the examination of financial statements for a client .
In broad sense it is systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between assertions and established criteria by GAAP and communicating results to the interested parties .
Attestation occur when practitioners engage in issuing or does issuing a written communications that expresses conclusions about the reliability of written assertions . Its examples are
- Effectiveness of internal control.
- Financial information’s other than financial statements .
- Financial information’s are future –oriented.
Assurance is service which is independent service it improve quality of information’s ,its context for decision makers .It examples include
- Risk Assessment.
- Electronic Commerce.
- Information system reliability.
- Auditing ,attestation and assurance are inter-related with each other .
(2-a) Why audit is necessary .
Audit is independent examination of financial statement that whether it may follow the criteria established by GAAP. The audit report may be free of errors like
- Frauds are not disclosed
- It may inadvertently misleading .
- It may fail to disclose all relevant information’s.
- It may fail to confirm regulations .
Finally, the auditor should be an independent person who has no personal interest in the entity whose audit is to be done .
Many large companies have multinational activities. Audit is required for their complex accounts. This is required to examine whether they follow criteria of GAAP or not in case of preparing Financial Statement.
(2-b) Differentiate between Accounting & Auditing .
Accounting is the process of recording, classifying ,summarizing and reporting financial information in a systematic manner for decision –making. It must follow rules & regulations of preparing financial statements .The end results are not main concern in accounting The accountant work for the interest of public or client/ organization for which they are working .
On the other hand Auditing is the examination of financial statements for client whether they are follow established criteria of GAAP or not on basis this examination an audit report is prepared.
- It express auditors opinion about audit .
- The end results are its main concern .
- The auditor should be competent and independent person who has no personal interest in the organization .
- What is an auditor report .
The primary aim of audit is that auditor may say these accounts are true and fair/these accounts are not true and fair .
At the end of audit the auditor may check entity, its record asnd its financial statements. The auditor produce a report in which he/she address the stake holders about the trueness or fairness of the audit report.
It is recorded in the annual report of the company .It is sometime refer to as a clean opinion .
Most of audit reports contain three paragraphs.
- The first paragraph about the responsibilities of the auditor and directors Like the internal control system .
- The second paragraph about the scope of GAAP and use. The standard of audit .the audit is conducted that firm want to obtain reasonable assurance that said statements are free from any kind of material misstatement.
- The third paragraph contain opinion of the auditor that accounts of the company are true and fair /not true and fair.
- Describe parts of Audit report .
Audit report is an appraisal of a small business complete financial status which is completed by an independent accounting professional.
Independent Audit report may contain
In introductory paragraph the audited company financial statements which comprise of balance sheet at the end of year on 31 December . Income statement with change in equity and cash flow statement for the ended year ..Summary of significant accounting policies and other explanatory notes .
Management responsibilities for financial statements may contain fit presentation of financial statements in accordance with international standard.it may include designing, maintaining and implementing internal control to the preparation and fair presentation of financial statements which are free from material misstatements .
Auditors responsibilities may include express his/ her opinion on these financial statements based on audit. The audit should be conducted according to the international standards .the international standard may contain ethical requirements ,plan and perform the audit to obtain reasonable assurance that financial statements are free from misstatements. The selected procedure should be according to the judgement capability of auditor like the assessment of the risks of material misstatements of the financial statements. The audit evidence should be sufficient and appropriate to provide basis for audit .
Opinion of the auditor make the audit report true and fair/ false and unfair .If the auditor is independent ,competent and honest his/her opinion will be reliable and acceptable .The auditor opinion can be unqualified ,qualified adverse and disclaimer .
The opinion can be unqualified mean clear opinion that audit report is free from any misstatement for small firms and the record is maintained according to the international standard .
Qualified opinion when financial record are not maintain according to the criteria described by GAAP ,but misrepresentations are identified.
Adverse opinion is worst financial report that firm record are not recorded according to the criteria of GAAP and the business is grossly misrepresented this may be consider as fraud .
Disclaimer opinion that on some occasions auditor is unable to complete an accurate audit report this contain many reasons like absence of appropriate financial records.
*Definition of Ethics
Ethics is the branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct. The term ethics derives from the Ancient Greek word ethikos. which is derived from the word ethos (habit, “custom”). It also can be defined as a set of moral principles or values. .
* The fundamental principles for ethical conduct of a Certified professional Auditor are given below:
A Certified professional Auditor should be straightforward and honest in performing professional services.
A Certified professional Auditor should be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity.
- Professional Competence and Due CareA Certified professional Auditors should perform professional services with due care, competence and diligence and has a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantage of competent professional service based on up-to-date developments in practice, legislation and techniques.
A Certified professional Auditor should respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose.
• Professional Behavior
A Certified professional Auditor should act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession. The latter requires to consider, when developing ethical requirements, the responsibilities of an auditor and accountant to clients, third parties, other members of the profession, staff, employers, and the general public.
• Technical Standards
A Certified professional Auditor should carry out professional services in accordance with the relevant technical and professional standards. Auditors and accountants have a duty to carry out with care and skill, the instructions of the client or employer insofar as they are compatible with the requirements of integrity, objectivity and, in the case of professional accountants in public practice (further, an auditor), independence.
*The rules of conduct for a Certified Professional Auditor are given below:
Integrity and Objectivity
Integrity implies not merely honesty but fair dealing and truthfulness. The principle of objectivity imposes the obligation on all auditors and accountants to be fair, intellectually honest and free of conflicts of interest.
Auditors serve in many different capacities and should demonstrate their objectivity in varying circumstances. Auditors undertake reporting assignments, and render tax and other management advisory services. Accountants prepare financial statements as a subordinate of others, perform internal auditing services, and serve in financial management capacities in industry (services), commerce, the public sector, budget institutions and education. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, auditors and accountants should protect the integrity of their professional services, and maintain objectivity in their judgment, for example, by performing analysis and decision making.
Fair market value
- The price which such asset would ordinarily fetch on sale in the open market on the relevant day, and where such price is not ascertainable, the price which the Deputy Commissioner of taxes may , with the approval in writing of the inspecting joint Commissioner , determine ;
(b) the residual value received from the lessee in case of an asset teased by financial institution having ticense from the Bangladesh Bank on termination of lease agreement on maturity or otherwise subject to the condition that such residual value plus amount realized during the currency of the lease agreement towards the cost of the asset is not less than the nost of acquisition to the lessor financial institution .
Any income , profits or gains, from whatever source derived , chargeable to tax under any provision of this Ordinance under any head specified in section 20;
Any loss of such income, profits or gains;
The profits and gains of any business of insurance carried on by a mutual insurance association computed in accordance with paragraph 8 of the fourth schedule;
Any sum deemed to be income, or any income accruing or arising or received, or deemed to accrue or arise of be received in Bangladesh under any provision of this ordinance
The financial year immediately preceding the assessment year ;or
Where the accounts of the assessee have been made up to a date within the said financial year and the assessee so opts, the twelve months ending on such date; or
In the case of business or profession newly set up in the said financial year , the period beginning with the date of the setting up of the business or profession and
- Ending with the said financial year, or
- Where the accounts or the assessee so opts, ending or that date; or
In the case of a business or profession newly set up in the twelve month immediately preceding the said financial year.
(e)in the case of any of person or class of persons or any business or profession or class of business or or profession such period as may be determined by the Board or by such authority as the Board may authorize in this behalf .
- An individual who has been in Bangladesh –
- For a period of, or for periods amounting in all to , one hundred and eighty two days or more in that year; or
- For a period of, or periods amounting in all to , ninety days or more in that year having previously been in Bangladesh for a period of , amounting in all to , three hundred and sixty-five days or more during four years preceding that year;
- A Hindu undivided family, firm or other association of persons , the control and management of whose affairs is situated wholly or partly in Bangladesh in that year ; and
- A Bangladesh company or any other company the control and management of whose affairs is situated wholly in Bangladesh in that year .
Charge of income tax (section 16):
Income tax shall be charged for any assessment year at any rate with provision of it ordinance, 1984 considering total income of the years.
Income tax may be collected deducted paid as tax at source or paid collected deducted in advance.
It shall be charged on
- A non residence persons income, not being a company.
- Income as capital gain.
- Income by winning.
It can be charged for any assessment year at any rate declared it may be applied to charge assessment, deduction source advance payment, collection, recovery, returned etc.
Charge of addition tax :
This tax can is charge or public limited company which is –
- Is not banking or insurance company
- Is listed with DSE or CSE or both
- Has not issued/declared/distributed
Dividened or bonus share or bonus share equivalent to at least 15% of its paid up capital to the shareholdess within a period of rsik monts immediately following a income year.
The addition tax will be charged at a rate of 5% of undistributed profit.
Charge in of excess profit tax:
A banking company showing profit exceeding 50% of its capital. Then in addition to tax payable for then assessment year, an excess profit tax @ 15% will be charged.
Charge of minimum tax:
If a company firm sustaining loss setting of loss of earlier year or claiming allowance under it ordinance 1984 then in respecting of its being in profit or loss for the the assessment year the company will pay a minimum tax @ 50% of its gross receipts from all sources for that year.
Here gross receipts means-
- All receipts from sale of goods
- All receipts from rendering services
- All receipts from any income head.
Scope of total income(section-17):
A persons total income of a income year includes-
- For a resident all income from whatever source which
- Received to be received in Bangladesh in that year.
- Accrued to firm outside bd in that year.
For a non- resident all income from weather sources which-
- Is received to be received in bd by himself or authorized one
- Is accrued to be accrued to his in bd during that year.
Income deemed to accrue/ arise in BD (section-18):
Following income shall be deemed to be accrued/arise in bd
- Any income as salary wherever paid if
- Earned in bd
- Paid bu the govt/ local authority in bd to a citizen of bd
- Income accruing/ arising from
- Any business connection in bd
- From any property asset right or other source in bd
- Transfer of capital asset in bd
- Any dividend paid outside bd by a Bangladeshi company.
- Any income as interest payable by
- The GOVT
- A resident person and debt incurred
- Inside/ outside BD
- A non resident person and debt incurred inside BD payable.
- Any income as fees for technical service payable-
- Any royalty payable by GOVT, by resident inside/ outside BD a not resident inside BD.