Audits depend on a set of principles to make them effective and reliable tools in supporting management controls and policies. Audit principles provide information for organisations to act and improve their performance in business.
According to the ISO, auditing must be based on these six basic principles:
- Integrity which is the foundation of professionalism.
- Fair presentation or the obligation to report accurately and truthfully.
- Professional care or the application of diligence and judgment when auditing.
- Confidentiality which is securing the information of a business.
- Independence which is the basis of impartiality of an audit and objective audit conclusions.
- The evidence-based method or approach or the rational method of reaching or attaining reliable, dependable and reproducible audit conclusions from a systematic or orderly audit process or procedure.
An audit can be successful if auditors adhere to these audit principles in trying to reach relevant, related and sufficient or adequate audit conclusions. Success is also likely if auditors are able to work independently in trying to reach similar conclusions in similar circumstances.
Audit Principles Explained Further
- Audits are performed with diligence, honesty, and responsibility
- Observation and compliance with applicable legal requirements
- Demonstrating competence when performing an audit
- Audits are conducted in an impartial manner
- Auditors remain unbiased or fair in all their dealings
- Being sensitive to influences exerted on the judgment during an audit.
- Fair Presentation
- Makes sure that reports, findings and conclusions are truthfully and accurately reflective of the audit activities
- Reporting of significant obstacles encountered during the audit
- Reporting of unresolved or the diverging opinions between the business being audited and the audit team
- Makes sure that communications are objective, truthful, accurate, timely, clear and complete.
- Due Professional Care
- Apply due care based on the importance of tasks and on the confidence given to you by a client
- Make reasonable judgments in all audit situations.
- Practice discretion and protection of information when auditing
- Never use audit information for personal gain or in harmful way to legitimise the interests of an auditee
- Handle sensitive and confidential information properly.
- Remain independent from the business or activity being audited
- Always be free of conflict or bias
- Be objective all throughout the audit process
- Make sure that findings and conclusions are based on verifiable evidence
- Internal auditors should be independent of what is being audited.
- Evidence-Based Approach
- Collate and collect verifiable evidence
- Evidence should be based on samples of ready information
- Use samples because audits are to be conducted in a limited amount of time and with limited resources
- Properly or appropriately use samples to add confidence on audit conclusion.
Other Basic Audit Principles
Auditors should plan their work to complete the audit of financial statements effectively and efficiently within the time that it should be completed. Auditor usually handles the accounting system and policies, internal control system of an organisation and determines the audit procedures and properly coordinating audit work.
Auditors should have impartial attitudes and free from any interest. They should be sincere and honest about their work and should do this without prejudice or bias.
Auditors should keep all information acquired during the audit confidential. This information should not be shared with anyone without permission from the client.
Auditors should follow substantive and compliance procedures in collecting audit evidence before conducting an audit. They may collect pieces of evidence about the completeness, accuracy, and validity of data of a business’s records. They may also collect pieces of evidence about the internal control system used by the client’s organisation.
Internal Control System
It is the primary duty of a company to keep a proper internal control system in the organisation. Based on this audit principle, auditors can determine the timing, nature and audit procedure to be applied in conducting an audit.
Skill and Competence
Audits should be done by competent, experience and trained persons. Audit staff should be updated on all developments in legal, accounting and auditing rules and regulations which are amended from time to time.
Work Done By Others
Auditors are allowed to rely on other’s work but they should practice due diligence if they refer to them. The source of reference should be mentioned in the audit report.
Auditors should organise and preserve all documents obtained during an audit. They can be used as audit evidence.
Business activities should run by adhering to regulations and rules stated in the legal framework. This should be done to protect the rights and interests of interested parties.
Based on the review and assessment of audit evidence, auditors must express an opinion regarding the financial statements of the business being audited.
External and internal auditors practice these audit principles to provide comprehensive reports, which adheres to international auditing standards.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.