Supervision Supervision and and

ReviewReview

Objective of supervision Objective of supervision and reviewand review

To ensure that the audit is done To ensure that the audit is done efficiently and effectively so that the efficiently and effectively so that the audit opinion can be expressed with audit opinion can be expressed with confidence.confidence.

While supervision is a day-to-day control While supervision is a day-to-day control to ensure that the audit proceeds to ensure that the audit proceeds satisfactorily and that any problems are satisfactorily and that any problems are immediately attended to, review can take immediately attended to, review can take place in stages during the progress of place in stages during the progress of work and after its completion.work and after its completion.

Standards of Standards of SupervisionSupervision

According to the field standards in According to the field standards in the Auditing Standards of the the Auditing Standards of the Comptroller and Auditor General Comptroller and Auditor General of India, the work of the audit staff of India, the work of the audit staff at each level and audit phase at each level and audit phase should be properly supervised should be properly supervised during the audit, and a senior during the audit, and a senior member of the audit staff should member of the audit staff should review documented work.review documented work.

Supervision -ISupervision -I

Supervision is essential to ensure Supervision is essential to ensure the fulfillment of audit objectives and the fulfillment of audit objectives and the maintenance of the quality of the the maintenance of the quality of the audit work. audit work.

Proper supervision and control is Proper supervision and control is necessary in all cases, regardless of necessary in all cases, regardless of the competence of individual the competence of individual auditors.auditors.

Supervision -IISupervision -II Supervision involves ensuring that:Supervision involves ensuring that:

the members of the audit team have a clear the members of the audit team have a clear and consistent understanding of the audit plan;and consistent understanding of the audit plan;

the audit is carried out in accordance with the the audit is carried out in accordance with the auditing standards and practices of the CAG; auditing standards and practices of the CAG;

the audit plan and action steps specified in that the audit plan and action steps specified in that plan are followed unless a variation is plan are followed unless a variation is authorised with adequate justification;authorised with adequate justification;

working papers contain evidence adequately working papers contain evidence adequately supporting all conclusions, recommendations supporting all conclusions, recommendations and opinions;and opinions;

the auditor achieves the stated audit the auditor achieves the stated audit objectives; and objectives; and

the audit report includes the audit conclusions, the audit report includes the audit conclusions, recommendations and opinions, as appropriate.recommendations and opinions, as appropriate.

Supervision-III Supervision-III Supervision ensures thatSupervision ensures that the audit work is carried out in accordance with the the audit work is carried out in accordance with the

audit plan and in tune with the audit objectives;audit plan and in tune with the audit objectives; important issues are identified in the course of audit;important issues are identified in the course of audit; no significant issue in the context of the audit no significant issue in the context of the audit

objectives and evidence required remains objectives and evidence required remains unresolved;unresolved;

evidence collected fulfils the criteria prescribed in evidence collected fulfils the criteria prescribed in the Auditing Standards;the Auditing Standards;

the work performed and the results including the the work performed and the results including the process of audit are separately documented, first in process of audit are separately documented, first in support of audit findings, conclusions and support of audit findings, conclusions and recommendations and the second in support of due recommendations and the second in support of due diligence exercised by the audit team;diligence exercised by the audit team;

the audit objectives are fully met.the audit objectives are fully met.

Structure of supervision-IStructure of supervision-I

Supervision is exercised by senior Supervision is exercised by senior members of audit team and SAI members of audit team and SAI management at various levels:management at various levels: by the group supervisory officer and by the group supervisory officer and

Accountant General, during planning of the Accountant General, during planning of the individual financial audits;individual financial audits;

by the Audit Officer, during the course of field by the Audit Officer, during the course of field audit, further supervised by group officer; andaudit, further supervised by group officer; and

by the Accountant General, during review of by the Accountant General, during review of periodic reports, monitoring and interim periodic reports, monitoring and interim appraisalsappraisals..

Structure of supervision-IIStructure of supervision-II

The supervisor acts as a link with management The supervisor acts as a link with management and is is expected to inform higher management and is is expected to inform higher management (i.e., Group Officer and Accountant General) of (i.e., Group Officer and Accountant General) of any problems and difficulties and to seek any problems and difficulties and to seek approval for the audit plan to be amended if the approval for the audit plan to be amended if the need arises.need arises.

The team leader should make sure that other The team leader should make sure that other members of the team are aware of what is members of the team are aware of what is required of them and that their work performed required of them and that their work performed conforms to standard. conforms to standard.

If an audit programme cannot be fully executed, If an audit programme cannot be fully executed, the team leader should ensure that any changes the team leader should ensure that any changes to it receive the approval of higher management.to it receive the approval of higher management.

Progress reportingProgress reporting The audit officer and group supervisory The audit officer and group supervisory

officer will be responsible for reporting the officer will be responsible for reporting the progress of audit to the next level progress of audit to the next level supervisory officer at prescribed intervals.supervisory officer at prescribed intervals.

The progress reports should contain all The progress reports should contain all important information relating to important information relating to progress of auditprogress of audit evidence gatheredevidence gathered analysis of evidenceanalysis of evidence time spent in audit against the time allottedtime spent in audit against the time allotted dialogue with auditeedialogue with auditee problems encountered in the course of audit and problems encountered in the course of audit and

modifications, if any, required in the audit plan.modifications, if any, required in the audit plan. Assurance memo shall be furnished by the Assurance memo shall be furnished by the

audit team on completion of the financial audit team on completion of the financial audit and on completion of the audit of each audit and on completion of the audit of each unit, as prescribed.unit, as prescribed.

ReviewReview

All audit work should be reviewed by a All audit work should be reviewed by a senior member of the audit staff before senior member of the audit staff before the audit opinions or reports are the audit opinions or reports are finalised. finalised.

It should be carried out as each part of It should be carried out as each part of the audit progresses. the audit progresses.

Review brings more than one level of Review brings more than one level of experience and judgment to the audit experience and judgment to the audit tasktask..

Assurance from a ReviewAssurance from a Review

Review should ensure that Review should ensure that all evaluations and conclusions are soundly all evaluations and conclusions are soundly

based and are supported by competent, based and are supported by competent, relevant and reasonable audit evidence relevant and reasonable audit evidence

all errors, deficiencies and unusual matters all errors, deficiencies and unusual matters have been properly identified, documented have been properly identified, documented and either satisfactorily resolved or brought and either satisfactorily resolved or brought to the attention of a more senior officers; to the attention of a more senior officers; andand

changes and improvements necessary to the changes and improvements necessary to the conduct of future audits are identified, conduct of future audits are identified, recorded and taken into account in later recorded and taken into account in later audit plans and in staff development audit plans and in staff development activities.activities.

Points to RememberPoints to Remember Review should not be left pending till the Review should not be left pending till the

completion of the audit and should be conducted as completion of the audit and should be conducted as soon as possible after discrete areas of the audit soon as possible after discrete areas of the audit have been finalised and the working papers have have been finalised and the working papers have been properly assembled. been properly assembled.

This ensures more effective control and facilitate This ensures more effective control and facilitate prompt necessary changes to audit coverage.prompt necessary changes to audit coverage.

By reviewing the work done, the reviewing officer By reviewing the work done, the reviewing officer takes responsibility for its quality and for the audit takes responsibility for its quality and for the audit conclusion reached as to whether or not material conclusion reached as to whether or not material error exists in the account. error exists in the account.

If the reviewing officer is not satisfied with the If the reviewing officer is not satisfied with the work done, it is his responsibility to ensure that any work done, it is his responsibility to ensure that any deficiencies in the audit are remedied.deficiencies in the audit are remedied.

Two stages of review- The Two stages of review- The First StageFirst Stage

First stage review should check:First stage review should check: the standing files are complete and up to date; the standing files are complete and up to date; approved audit programmes have been used;approved audit programmes have been used; systems documentation and evaluations are systems documentation and evaluations are

carried out and recorded in the form approved by carried out and recorded in the form approved by the CAG of India;the CAG of India;

working papers are complete and properly working papers are complete and properly referenced;referenced;

the conclusions reached are supported by the conclusions reached are supported by evidence contained in the working papers; evidence contained in the working papers;

a letter or report is drafted informing the audited a letter or report is drafted informing the audited entity of any weaknesses revealed by the audit.entity of any weaknesses revealed by the audit.

The first stage reviewer should check all The first stage reviewer should check all calculations crucial to the audit conclusion.calculations crucial to the audit conclusion.

The Second Stage of The Second Stage of reviewreview

The second stage review should cover The second stage review should cover all significant matters, particularly areas all significant matters, particularly areas where judgments have been made. where judgments have been made.

The second stage reviewer takes The second stage reviewer takes responsibility for the final conclusion on responsibility for the final conclusion on the audit including any qualifications the audit including any qualifications proposed. proposed.

He is also responsible for approval of He is also responsible for approval of any management letter to be issued to any management letter to be issued to the audited entity.the audited entity.

Second stage reviewer-ISecond stage reviewer-I Second Stage Review is a selective Second Stage Review is a selective

examination of the working papers examination of the working papers carried out to ensure that the audit work carried out to ensure that the audit work has been done satisfactorily. has been done satisfactorily.

This means satisfying oneself that the This means satisfying oneself that the first stage review was properly carried first stage review was properly carried out. out.

In addition the second stage reviewer In addition the second stage reviewer should also carry out a sufficient review should also carry out a sufficient review of the financial statements to provide of the financial statements to provide him, together with the conclusions drawn him, together with the conclusions drawn from other audit evidence obtained, a from other audit evidence obtained, a reasonable basis for the proposed reasonable basis for the proposed opinion on the financial statements. opinion on the financial statements.

Second stage reviewer-IISecond stage reviewer-II He should endeavour to ensure that all He should endeavour to ensure that all

outstanding matters have been cleared before outstanding matters have been cleared before he submits the records to the Office of the he submits the records to the Office of the C&AG and should record on the Examination C&AG and should record on the Examination Folder that:Folder that: he has completed his review of the papers he has completed his review of the papers

supporting the examination of the account;supporting the examination of the account; he is satisfied that sufficient, relevant and reliable he is satisfied that sufficient, relevant and reliable

evidence has been obtained to support the C&AG’s evidence has been obtained to support the C&AG’s certificate and that the work has been carried out in certificate and that the work has been carried out in accordance with the auditing standards of the accordance with the auditing standards of the C&AG; andC&AG; and

either that he is satisfied that an unqualified either that he is satisfied that an unqualified certificate can be given or that he recommends a certificate can be given or that he recommends a qualified certificate.qualified certificate.

Quality assurance for Quality assurance for supervision and review is supervision and review is

ensured byensured by adherence to the Auditing Standards, Manuals adherence to the Auditing Standards, Manuals

and Guidesand Guides defined structure and system of supervision and defined structure and system of supervision and

reviewreview strict conformity to the prescribed supervision strict conformity to the prescribed supervision

and review systemand review system periodic reporting and monitoring during the periodic reporting and monitoring during the

audit process; andaudit process; and peer review and technical supervision review.peer review and technical supervision review. SAI management may prescribe specific SAI management may prescribe specific

supervision and review procedures for each supervision and review procedures for each kind of financial audits undertaken while kind of financial audits undertaken while formulating the detailed operational guidelines formulating the detailed operational guidelines for financial audit.for financial audit.

Quality Quality AssuranceAssurance

Quality AssuranceQuality Assurance

Requirements of CAG’ Auditing Requirements of CAG’ Auditing Standards – ‘Because of the importance Standards – ‘Because of the importance of ensuring a high standard of work by of ensuring a high standard of work by the audit department, it should pay the audit department, it should pay particular attention to quality assurance particular attention to quality assurance programmes in order to improve audit programmes in order to improve audit performance and results. The benefits to performance and results. The benefits to be derived from such programmes make be derived from such programmes make it essential for it essential for appropriate resources to appropriate resources to be available for this purposebe available for this purpose’’

Quality AssuranceQuality Assurance

It is essential that SAI should have an It is essential that SAI should have an appropriate quality assurance system appropriate quality assurance system in place to –in place to –

1.1. confirm that internal quality assurance confirm that internal quality assurance processes have operated satisfactorilyprocesses have operated satisfactorily

2.2. ensure the quality of the audit report, ensure the quality of the audit report, andand

3.3. secure improvements and avoid secure improvements and avoid repetition of weaknessesrepetition of weaknesses

Quality AssuranceQuality Assurance Factors (inter-related) that determine quality Factors (inter-related) that determine quality

of Quality Assurance –of Quality Assurance –a)a) Basic conditions Basic conditions for good performance i.e. the for good performance i.e. the

general foundations on which day to day work general foundations on which day to day work dependsdepends

b)b) Quality features Quality features which are built into routine which are built into routine procedures for audit workprocedures for audit work

c)c) Supporting elements Supporting elements needed for good needed for good performance, such as provision of adequate performance, such as provision of adequate resources and facilitiesresources and facilities

d)d) Control and reviews Control and reviews designed specifically to designed specifically to examine and improve the quality performanceexamine and improve the quality performance

Quality Assurance and Quality Quality Assurance and Quality ControlControl

Quality AssuranceQuality Assurance Process centricProcess centric Concerns all steps and Concerns all steps and

techniques that the techniques that the auditor must follow to auditor must follow to assure good quality assure good quality auditaudit

Applies to entire life Applies to entire life cycle of the auditcycle of the audit

System is put in place System is put in place before the work is before the work is undertaken/doneundertaken/done

Quality ControlQuality Control Product centricProduct centric Quality control system Quality control system

attempts to make sure attempts to make sure that the results of that the results of audit are what were audit are what were expectedexpected

Applies to individual Applies to individual stages or productsstages or products

Applied after the work Applied after the work is completedis completed

Quality Assurance system in Quality Assurance system in SAI IndiaSAI India

Conducting audits in accordance with Conducting audits in accordance with the mandate of CAG of Indiathe mandate of CAG of India

The Regulations, manuals, instructions The Regulations, manuals, instructions and guidelines on audit workand guidelines on audit work

Organisation of audit work with clearly Organisation of audit work with clearly defined responsibilities for staff, audit defined responsibilities for staff, audit officers and supervisory officersofficers and supervisory officers

Standards of qualification and Standards of qualification and competence of the staff members, competence of the staff members, continuing skill development and continuing skill development and trainingtraining

Quality Assurance system in Quality Assurance system in SAI India (contd..)SAI India (contd..)

Standards for independence, competence, Standards for independence, competence, due care, field standards relating to due care, field standards relating to planning, supervision and review, planning, supervision and review, evidence(KD), reporting and follow upevidence(KD), reporting and follow up

Documentation of the audit and of the Documentation of the audit and of the management processmanagement process

Internal quality control system including Internal quality control system including the guidance on technical and the guidance on technical and administrative aspects of quality controladministrative aspects of quality control

Quality assurance review programmesQuality assurance review programmes

Quality assurance review Quality assurance review programmeprogramme

As per FAAM, audit quality assurance As per FAAM, audit quality assurance review programme consists of review programme consists of independent independent peer reviewspeer reviews of the of the activities undertaken within the activities undertaken within the Department to assess the overall quality Department to assess the overall quality of auditsof audits

Peer review covers all activities Peer review covers all activities undertaken by a particular officeundertaken by a particular office

Conducted by a peer officeConducted by a peer office Peer review of specific audit product (eg. Peer review of specific audit product (eg.

Performance audit) just initiated in the Performance audit) just initiated in the deptt.deptt.

Quality assurance review Quality assurance review programmeprogramme

Cold Review(NAO), another name Cold Review(NAO), another name for peer reviewfor peer review

External Review – review of audit External Review – review of audit work by an external body/SAI (just work by an external body/SAI (just initiated in the department)initiated in the department)

Feedback from clients (auditees) – Feedback from clients (auditees) – not in vogue in the countrynot in vogue in the country

Some issues of Some issues of audit interestaudit interest

Policies and guidance of Policies and guidance of CAG in CAG in respect of the respect of the

following issuesfollowing issues Using the work of other auditors and Using the work of other auditors and

specialistsspecialists Opening balances and comparativesOpening balances and comparatives Other information published with Other information published with

financial statementsfinancial statements Position of Audit in relation to Position of Audit in relation to fraud fraud

and corruptionand corruption

(1)Using the work of other (1)Using the work of other auditors/specialistsauditors/specialists

In some audits there can be areas where it In some audits there can be areas where it is both effective and efficient to use the is both effective and efficient to use the work of others as a source of audit work of others as a source of audit evidence, such as –evidence, such as –

• documentation of systems by internal documentation of systems by internal auditorsauditors

• testing carried out by internal auditorstesting carried out by internal auditors• retirement benefit liability calculations retirement benefit liability calculations

provided by actuaries (AS 15)provided by actuaries (AS 15) However responsibility remains with CAG However responsibility remains with CAG

auditorsauditors

(1)Using the work of other (1)Using the work of other auditors/specialistsauditors/specialists

Reliance on Internal Audit Reliance on Internal Audit Audit should carry out a Audit should carry out a general assessment general assessment of the of the

effectiveness of the internal audit function at effectiveness of the internal audit function at planning stageplanning stage

The status, resources provided to internal audit, The status, resources provided to internal audit, coverage of internal audit, quality of internal audit coverage of internal audit, quality of internal audit work, etc. must be seen during assessment of work, etc. must be seen during assessment of internal audit functioninternal audit function

It is common practice to use questionnaire while It is common practice to use questionnaire while making assessment of internal audit functionmaking assessment of internal audit function

It is essential to evaluate the work performed by It is essential to evaluate the work performed by internal audit before reaching conclusion on its internal audit before reaching conclusion on its adequacyadequacy

Depending on outcome of evaluation, some limited Depending on outcome of evaluation, some limited testing or reperformance of internal auditors’ work testing or reperformance of internal auditors’ work may be donemay be done

(1)Using the work of other (1)Using the work of other auditors/specialistsauditors/specialists

Reliance on specialist’s workReliance on specialist’s work Assessment of objectivity and professional Assessment of objectivity and professional

competence of the specialist is essentialcompetence of the specialist is essential Audit team should be satisfied as to the Audit team should be satisfied as to the

professional standing and independence of the professional standing and independence of the specialistspecialist

If specialist is engaged by the audited entity, If specialist is engaged by the audited entity, audit team should review the relevant terms of audit team should review the relevant terms of referencereference

When specialist is engaged by Audit, it should be When specialist is engaged by Audit, it should be ensured that clear written instructions of audit ensured that clear written instructions of audit requirements are providedrequirements are provided

(2) Opening balances and (2) Opening balances and comparativescomparatives

Opening balances Opening balances – based on closing – based on closing balances of preceding periodbalances of preceding period

It can materially affect current period’s It can materially affect current period’s financial statementsfinancial statements

Audit should therefore obtain relevant, Audit should therefore obtain relevant, reasonable and competent audit evidence reasonable and competent audit evidence that amounts derived from preceding that amounts derived from preceding period’s financial statements are free period’s financial statements are free from misstatementfrom misstatement

(2) Opening balances and (2) Opening balances and comparativescomparatives

ComparativesComparatives – the corresponding amounts and – the corresponding amounts and other related disclosures from the preceding other related disclosures from the preceding period that are part of current period’s financial period that are part of current period’s financial statementsstatements

Evidence that the accounting policies used for Evidence that the accounting policies used for the comparatives are consistent with the current the comparatives are consistent with the current period’s should be obtainedperiod’s should be obtained

Audit should also obtain evidence that Audit should also obtain evidence that comparatives agree with the amounts and comparatives agree with the amounts and disclosures presented in the preceding perioddisclosures presented in the preceding period

Normally financial statements of preceding Normally financial statements of preceding accounting period would have been audited by accounting period would have been audited by CAG. In such cases only the CAG. In such cases only the accuracyaccuracy need be need be ascertainedascertained

(3) Other information published with (3) Other information published with financial statementsfinancial statements

Other information – Foreword; report of CEO/ Other information – Foreword; report of CEO/ Minister/Secretary; Review of activities; commentary Minister/Secretary; Review of activities; commentary on performance and achievement of targets; etc.on performance and achievement of targets; etc.

Objective – inconsistencies/misstatements in other Objective – inconsistencies/misstatements in other information should not mislead the user and information should not mislead the user and undermine the credibility of the financial statementundermine the credibility of the financial statement

Where inconsistencies or apparent misstatements Where inconsistencies or apparent misstatements are identified, it should be considered as to whether are identified, it should be considered as to whether this throws doubt on any information in the financial this throws doubt on any information in the financial statementsstatements

It should be seen whether It should be seen whether financial statements financial statements are in are in error, the error, the other information other information is in error or there is is in error or there is element of inaccuracy in bothelement of inaccuracy in both

Audit should ask the management of the auditee Audit should ask the management of the auditee entity to make appropriate amendments to the entity to make appropriate amendments to the relevant statementsrelevant statements

(3) Other information published with (3) Other information published with financial statementsfinancial statements

Dealing with misstatementsDealing with misstatementsNature/Degree of

misstatementsHow to deal with it

When financial statements are materially misstated and auditee refuses to make appropriate amendments

The Audit certificate should be ‘modified’.

If inconsistency or misstatement is relatively minor…..and failure to amend may not undermine the credibility of financial statements

Audit should raise the matter in a report to management (ML). It may not be necessary to propose a comment within the Audit certificate. Full details with supporting documents should be furnished to CAG while sending draft audit certificate, wherever required to be sent

Where the ‘other information’ is significantly wrong and is likely to be read with the financial statements

Audit should propose to include an explanatory paragraph within the audit certificate to draw the reader’s attention to audit’s concerns

(4) Position of Audit in relation (4) Position of Audit in relation to Fraudto Fraud

““any indication that an irregularity, illegal act, any indication that an irregularity, illegal act, fraud or error may have occurred which could fraud or error may have occurred which could have a material effect on the audit should cause have a material effect on the audit should cause the auditor to extend procedures to confirm or the auditor to extend procedures to confirm or dispel such suspicions” dispel such suspicions” – Field Standards – Field Standards

Audit should be vigilant about fraud both at Audit should be vigilant about fraud both at planning stage and while conducting field workplanning stage and while conducting field work

Financial attest audit work must be planned to Financial attest audit work must be planned to give a reasonable assurance to detect material give a reasonable assurance to detect material misstatement in the accountsmisstatement in the accounts

Primary responsibility for safeguarding the Primary responsibility for safeguarding the audited entity’s funds and assets and to prevent audited entity’s funds and assets and to prevent frauds or errors lies with its managementfrauds or errors lies with its management

(4) Position of Audit in relation (4) Position of Audit in relation to Fraudto Fraud

Detection of fraud is not the main Detection of fraud is not the main purpose of financial attest auditpurpose of financial attest audit

Frauds involving collusion, particularly at Frauds involving collusion, particularly at senior management level, may not be senior management level, may not be ordinarily detected by normal auditing ordinarily detected by normal auditing proceduresprocedures

If a material fraud was perpetrated and If a material fraud was perpetrated and not discovered by audit, the conduct of not discovered by audit, the conduct of audit can be called into question, audit can be called into question, particularly if the evidence was such as particularly if the evidence was such as would arouse suspicion in an auditor of would arouse suspicion in an auditor of normal prudence (Satyam)normal prudence (Satyam)

Thank youThank you