Today, we are all part of highly dynamic and volatile corporate environment where we are surrounded by the changes. We may encompass changes in the form of needs of the people; technology; methods of doing business, etc. In all this ever-changing situations, what is remaining consistent are some of the globally accepted and followed principles.
Often in our academic period we have studied about some of the fundamental principles of auditing like integrity, objectivity, professional behavior and conduct, confidentiality, consistency, etc., however the real principles or the core concept of auditing is much deep rooted.
How to make best use of the below listed principles of auditing?
Before we start reading about the core principles of the auditing, we should be clear about the fact that these principles are best usable while ‘performing the audit‘. These principles shall be most useful while we are in the execution stage of auditing i.e. we are through with understanding the ‘objective of audit‘ and we are also clear about the ‘approach or technique‘ that we need to follow through the course of audit. These principles can also be best used while ‘analyzing our audit findings‘ before we ‘report‘ them to the stakeholders. Also, you may find some the principles to be overlapping with one another.
Now let us read through the core principles that auditor should follow:
1. Be a keeper, not a shooter: One might relate the term ‘keeper’ and ‘shooter’ to the game of Soccer / Football. It will could be a good way to relate the first and foremost principle of auditing. An auditor must follow a reactive approach to whatever information / situation / business case comes to it is way. Although it is very important to be proactive in analyzing certain situation, and in digging deeper into the issue; however at the end while one obtains further information, evidences, etc., and one gets reasonable assurance that there is no deliberate fraud or error, one should change are approach to be reactive. In other words, ‘an auditor is a watchdog, not a blood-hound’.
2. What difference does ‘it’ make: One may quickly relate the aforesaid statement to the one of the most commonly used concepts in auditing i.e. ‘materiality’. It is very important to understand the significance of impact that one’s finding, issue or scope of audit / review will make to the business / entity.
3. Be rational, avoid prejudice: It is very common in auditing that we interact with the prior period auditors. While this practice is very important to get an in-depth understanding about the core processes and business of the organization. However, an auditor should be mindful of the fact that it do not make any pre-conceived notions about the entity under review. Auditor must have an open mind to listen and accept the improvements made the entity in response to the prior period findings and audit report.
4. Be insightful: It is very important to thoroughly understand the business / market / industrial conditions in which the entity is operating in. It is very important to understand the reason behind current situation / circumstance of the entity / organization / process one is auditing.
5. Exchange hats (Empathy): The best way to be insightful is to – ‘turn the tables’. This can be done by asking yourself a question that – what you would have done had you been in such a situation. We may can this principle as giving a ‘propriety view’ to the business or operations of the entity / process being audited.
6. Be objective, but give due regards to the intent: Fraud / error are very harmful for the normal functioning of any business, irrespective of the fact that it has been deliberately done or intentionally. Further, we also know that the deliberate fraud and error are more dangerous than the unintended errors. In other words, intended fraud / error is much more riskier than the unintended fraud / error. Hence, it is very important to objectively evaluate the intent behind a given situation or an issue. This shall help the auditor in framing the findings more appropriately and give better recommendations to its clients.
7. Keep an eye on future: Being futuristic is very important for an auditor. As it has been said that we are working in a highly versatile and ever-changing business environment. An auditor must make its observation and giving recommendations by giving due regards to the prospective future changes.
People often confuse between the technique and principles. Technique is the procedure and can be changed depending upon the needs of the review or audit, however the basic principles remain the same through the course of audit. The above listed principle shall play a vital role in all stage of auditing i.e. planning, execution, finalizing and reporting.