INDO-CHINA SEMINAR

PAPER ON AUDITING STANDARDS

Government budget and accounts are not mere financial statements. In the context of a
welfare State, these reflect the goals of development of the nation. Critical analysis of
revenues, consumption expenditure, savings, public debt, capital expenditure and returns
there from, becomes not only the responsibility of administration, but also of Audit.
Efficient financial control also requires concurrent internal check and audit, which would
greatly facilitate independent external audit being done more reliably and quickly and at
lesser cost. Auditors do not work in isolation and meaningful interaction between them
and the administrators and the managers of public sector undertakings & autonomous
bodies and authorities is necessary.

Government auditors have to equip themselves adequately with the conceptual skills
necessary for their tasks. In this context, the Auditing Standards prescribe the norms of
basic principles and practices which Government auditors are expected to follow. These
are not in any way to affect the constitutional and legal provisions governing the duties
and powers SAI. These Standards may require modification, from time to time, in the
light of professional developments and changes in the legal framework.

1. Auditing Standards

1.1 Auditing Standards prescribe the norms of principles and practices, which the
Auditors are expected to follow in the conduct of Audit. They provide minimum guidance
to the Auditor that helps determine the extent of auditing steps and procedures that should
be applied in the audit and constitute the criteria or yardstick against which the quality of
audit results are evaluated. They serve as a beacon and foster a great sense of
responsibility among government auditors as well as others concerned with public
accountability at all levels to secure accountability and as a result, good governance.

1.2 Relevance and application

 Auditing standards provide the framework for performing high quality audit.
Compliance with these standards is expected to ensure that a high quality of audit
is performed for achieving the audit objectives.

 Auditing standards shall apply both to the individual auditor and the audit
department.

 Auditing standards shall apply to all types of audit including financial audit,
compliance audit and performance audit.

1
1.3 The auditing standards of the International Organisation of Supreme Audit
Institutions (INTOSAI) have been suitably adapted with due consideration of the
Constitution of India, Comptroller and Auditor General’s (Duties, Powers and Conditions
of Service) Act, 1971 and other relevant statutes & extant rules, while prescribing the
auditing standards of the Comptroller and Auditor General of India.

The auditing standards consist of four parts:

(a) Basic principles

(b) General Standards

(c) Field Standards

(d) Reporting Standards

Basic
principles

Reporting
INTOSAI
Standards General
Auditing
Standards
Standards

Field
Standards

2
2. Basic Principles

The basic postulates for auditing standards are basic assumptions, logical principles and
requirements which help in developing auditing standards and serve the auditors in
forming their opinions and reports, particularly in cases where no specific standards
apply. The following paragraphs elaborate the INTOSAI basic principles of auditing
standards followed in SAI India.

The SAI should comply with the INTOSAI Auditing Standards in all matters that
are deemed material

The primary focus of SAI, India is to improve the quality of public administration by
encouraging and promoting generally accepted professional auditing practices. In
pursuance of maintaining high standards of audit, the SAI, India has promulgated
Auditing Standards that prescribe the standards of professional conduct of the officers
and staff of the Indian Audit and Accounts Department (IA&AD). These Auditing
standards are also consistent with the contemporary global best practices, including those
of INTOSAI. In order to achieve this objective, SAI, India has an active association with
international and regional organisations of Supreme Audit Institutions.

With a view to compliance with INTOSAI Auditing Standards, SAI (India) has issued
various standing orders and technique specific guidelines viz. Financial Attest Audit
Manual, Internal Control Evaluation Manual, Performance Audit Guidelines, Evidence
Gathering Guidelines, Standing Orders on Role of Audit in Relation to Cases of Fraud &
Corruption e.t.c. These Standing Orders/Guidelines contain step-by-step
procedure/methodology and techniques for conduct of audit in pursuance of established
Auditing Standards & development of the professional competence in Audit department.

Further, as per Section 21 of ‘Regulations on Audit and Accounts (2007)’ 1 of SAI, India,
the international auditing standards may be considered and suitably adapted keeping in
view the Constitution of India, other relevant statutes and extant rules while prescribing
the auditing standards of the Comptroller and Auditor General.

1
Regulations on Audit and Accounts (2007) of SAI, India : In pursuance of Section 23 of
the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service)
Act,1971

3
The SAI should apply its own judgment to the diverse situations that arise in the course
of Government auditing.

As per Indian auditing Standards2, it would be impracticable to establish a code of rules,

sufficiently elaborate, to cater to all situations and circumstances which an Auditor might
encounter. In the observance of Auditing Standards, therefore, the Auditor must exercise
his judgment in determining the auditing procedures necessary in the circumstances. In
regard to audit of financial statements of public sector enterprises, the SAIs audit
objectives may be similar to the objectives of audit in private sector. Correspondingly, for
the audit of financial statements of the corporate sector, the government auditor may
apply standard audit practices issued by the Institute of Chartered Accountants of India
(ICAI).

With a view to ensuring the accountability of the executive of the Government companies
and corporations to the Parliament and State Legislatures, the C&AG (DPC) Act
envisages that the Comptroller & Auditor General of India (SAI) shall have powers to
conduct the audit of the accounts of the Governments companies and corporations. These
provisions are consistent with the Indian Companies Act, 1956 and the Acts establishing
the corporations. The Companies Act, 1956 empowers the C&AG to:

 appoint/re-appoint the auditors of a Government company;

 direct the manner in which accounts shall be audited;
 give such instructions to the auditors in regard to any matter relating to audit;
 to conduct a supplementary or test audit of the accounts; and
 to comment upon or supplement the audit report of the statutory auditors.

With increased public consciousness the demand for public accountability of

persons or entities managing public resources has become increasingly evident so
that there is a need for the accountability process to be in place and operating
efficiently.

The broad aim of SAI, India is to safeguard the financial interests of the State and
promote public accountability & sound financial management practices. SAI, India is
committed to bring to light wastefulness, internal control failures, system weaknesses,
deficiencies and the circumstances leading to infructuous expenditure. In addition, it
assists the legislatures in the exercise of financial control over the executive Government.

According to Section 4 of ‘Regulations on Audit and Accounts (2007)’ 3 of SAI, India, the
broad objectives of audit are to ensure legality, regularity, economy, efficiency and
2
Para 4.2 of chapter -1 of Indian auditing standards (2002)

4
effectiveness of financial management and public administration mainly through
assessment as to:

 whether the financial statements are properly prepared, are complete in all
respects and are presented with adequate disclosures ;

 whether the provisions of the Constitution, the applicable laws, rules and
regulations various orders and instructions issued by competent authority are
being complied with ;

 The extent to which an activity, programme or organisation operates

economically, efficiently and effectively ;

Legislative enactment exists to facilitate the co-operation of audited entities in

maintaining and providing access to all relevant data necessary for a comprehensive
assessment of the activities under audit.

The Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act,
1971 Act, provides authority to the Auditor to inspect any office of accounts of the Union
or of a State, to require that any books, papers and other documents which are relevant to
the transactions to be sent to him and to put such questions to the persons in charge of the
office as he may require for the preparation of any report.

The Authority of the C&AG4 of India (SAI) in regard to access to all relevant data
necessary for a comprehensive assessment of the activities is as under:

Under Section 18 read with Section 2(e) of the Comptroller and Auditor General’s
(Duties, Powers and Conditions of Service) Act, 1971 Act, the Comptroller and Auditor
General has the authority:

(a) to inspect any office of accounts under the control of the Union or of a State or
of a Union Territory having a legislative assembly

(b) to require that any accounts, books, papers and other documents which deal with
or form the basis of or are otherwise relevant to the transactions to which his duties
in respect of audit extend, shall be sent to such place as he may appoint for his
inspection; and
3
Regulations on Audit and Accounts (2007) of SAI, India : In pursuance of Section 23 of the Comptroller
and Auditor General’s (Duties, Powers and Conditions of Service) Act,1971
4
Comptroller & Auditor General of India (SAI)

5
 (c) to put such questions or make such observations as he may consider necessary,
to the person in charge of the office and to call for such information as he may
require for the preparation of any account or report which it is his duty to prepare.

Further, the person in charge of any office or department, the accounts of which have to
be inspected and audited by the Comptroller and Auditor General of India, shall afford all
facilities for such inspection and comply with requests for information in as complete a
form as possible and with all reasonable expedition.

All audit activities should be within the SAI's audit mandate

The term 'Audit' includes Financial Audit, Regularity Audit and Performance Audit. In
pursuance of the Constitutional responsibility, the SAI, India is empowered to decide the
nature, scope, extent and quantum of audit including the form and content of the audit
reports in respect of audit to be conducted by him or on his behalf.

As per Section 23 of the Comptroller and Auditor General’s (Duties, Powers and
Conditions of Service) Act, 1971 Act, the scope and extent of audit shall be determined
by the Comptroller and Auditor General.

Scope of audit

 Within the audit mandate, the Comptroller and Auditor General is the sole
authority to decide the scope and extent of audit to be conducted by him or on his
behalf. Such authority is not limited by any considerations other than ensuring
that the objectives of audit are achieved.
 In the exercise of the mandate, the Comptroller and Auditor General undertakes
audits which are broadly categorised as financial audit and performance audit.

 The scope of audit includes the assessment of internal controls in the auditable
entities.
 The Comptroller and Auditor General may, in addition, decide to undertake any
other audit of a transaction, programme or organisation in order to fulfill the
mandate and to achieve the objectives of audit.

Extent of audit
Extent of audit means the quantum of audit including the period, the units of the auditable
entity, the extent of test check and the boundaries of audit enquiry to be covered in an
audit.

6
Further, as per Section 5 of ‘Regulations on Audit and Accounts (2007)’5 of SAI, India,
all audits undertaken by the Comptroller and Auditor General, or on his behalf, shall be
as per the Constitution of India and the C&AG (DPC) Act. These Regulations, standing
orders, guidelines and practice notes issued by the Comptroller and Auditor General shall
guide the conduct of such audits.

Appropriate authorities should ensure the promulgation of acceptable accounting

standards for financial reporting and disclosure relevant to the needs of the
Government and audited entities should develop specific and measurable objectives
and performance targets.

Under Article 149 of the Constitution of India, the Comptroller and Auditor General
(SAI) shall perform such duties and exercise such powers in relation to the accounts of
the Union and of the States and of any other authority or body as may be prescribed
by or under any law made by Parliament.

By virtue of the provisions of Article 150 of the Constitution of India, the accounts of the
Union and the States shall be kept in such form as the President may, on the advice of the
Comptroller and Auditor General, prescribe. The word “form” used in Article 150 has a
comprehensive meaning so as to include the prescription not merely of the broad form in
which the accounts are to be kept, but also the basis for selecting the appropriate heads
under which the transactions are to be classified.

For the purpose of Section 23 of the Comptroller and Auditor General’s (Duties, Powers
and Conditions of Service) Act, 1971 Act,, the Government Accounting Rules, 1990 shall
be deemed to be the general principles of Government accounting. All Government
departments are required to comply with the general principles of Government
accounting. It is the duty of auditors to examine during audit whether these principles are
being complied with by all Government departments.

3. General Standards:

The general auditing standards describe the qualifications of the auditor and the auditing
institution so that they may carry out the tasks related to field and reporting standards in a
5
Regulations on Audit and Accounts (2007) of SAI, India : In pursuance of Section 23 of the Comptroller
and Auditor General’s (Duties, Powers and Conditions of Service) Act,1971

7
competent and effective manner. The general auditing standards include standards, which
apply both to the auditors and to the audit institutions, and standards, which apply to
audit institutions.

The General Standards are different from the Field Standards and Reporting Standards.
The former are concerned with the relationship of the auditor to the audited organization
and with the personal conduct of the auditor in carrying out the audit; the latter are
concerned with the audit itself. The following paragraphs elaborate the INTOSAI General
Auditing Standards followed in SAI India.

The auditor and the audit institutions must be independent.

An adequate degree of independence from both the legislature and the executive branch
of government is essential to the conduct of audit and to the credibility of its results. The
constitution of India provides adequate degree of independence to SAI India.

Under article 148 of Constitution of India, Comptroller and Auditor-General of India

shall be appointed by the President by warrant under his hand and seal and shall only be
removed from office in like manner and on like grounds as a Judge of the Supreme Court.

The salary of a Comptroller and Auditor-General and his rights in respect of leave of
absence, pension or age of retirement shall not be varied to his disadvantage after his
appointment.

The Comptroller and Auditor-General shall not be eligible for further office either under
the Government of India or under the Government of any State after he has ceased to
hold his office.

Subject to the provisions of this Constitution and of any law made by parliament, the
conditions of service of persons serving in the Indian Audit and Accounts Department
and the administrative powers of the Comptroller and Auditor-General shall be such as
may be prescribed by rules made by the President after consultation with the Comptroller
and Auditor-General.

The administrative expenses of the office of the Comptroller and Auditor-General

including all salaries, allowances and pensions payable to or in respect of persons serving
in that office, shall be charged upon the Consolidated Fund of India

The legal mandate provided in the Comptroller and Auditor General's (Duties, Powers
and Conditions of Service) Act, 1971 provides free access for the CAG and his auditors
to all premises and records relevant to audited entities and their operations and provides
adequate powers to the CAG to obtain relevant information from persons or entities
possessing it.

8
The auditor and the audit institutions must possess the required competence.
.

The officers of the Indian Audit and Accounts Service (IA&AS) are recruited through the
Civil Services examination conducted by the Union Public Service Commission. They
are initially placed on probation and undergo intensive professional training in the
National academy of Audit & accounts. The classroom training is supplemented by
practical training in district treasuries, public works and forest divisions, Reserve Bank of
India, Bureau of Parliamentary Studies and an intensive module in Public Finance at
National Institute of Public finance and policy.

SAI, India lays considerable emphasis on training to the officers and staff to improve
the quality of work. IA&AD 6 has established international level training institutes at
NAAA（国家审计会计学院） , Shimla and iCISA（国际信息系统审计
中心） , Noida for Group A officers and nine Regional Training Institutes (RTIs) and
three Regional Training Centers for training of Group B and C officials. In addition,
almost all field offices have facilities for carrying in house training

SAI, India also organises large number of in-service training courses for IA&AS officers.
To equip itself with up-to-date audit techniques SAI, India organise courses/seminars on
various concurrent issues like IT Audit and use of CAAT, Audit of Missions/PSUs,
Performance Audit, International Audit, Accounting/Auditing Standards, Public Private
Participation, Environment, Statistical sampling.

SAI, India established the international center for information system Audit (iCISA) in
2002(an ISO 9001:2000 and ISO 27001 certified institution) It is committed to provide
high quality training and to serve as a platform at the international level for various SAIs
to come together and share their knowledge and experience in various fields of audit,
including in emerging areas like IT audit and Environment Audit. The international
courses enable the participants to get an exposure to the contemporary best practices of
audit and the emerging audit concerns among the fraternity of government auditors.

To meet the new challenges in the Audit, SAI, India have revised the syllabi of Section
Officers Grade Examinations to include a new paper on ‘Statistical Sampling’ in all
branches and additional topics on ‘Accounting, Auditing and Assurance Standards issued
by the ICAI, International Public Sector Accounting Standards (IPSAS) of IFAC,
Performance Auditing Guidelines, INTOSAI guidelines on Internal Control, ASSOSAI
guidelines for dealing fraud and corruption and CAAT and its usage in auditing’ in papers
relating to auditing in different branches.

6
Indian Audit & Accounts Department

9
SAIs should avoid conflict of interest between the auditor and the entity under audit

The SAI, India performs its role by carrying out audits of the various public sector
entities and by reporting the results in conformity with Reporting Standards. To fulfill
this role, the SAI, India maintains its independence and objectivity. The application of
appropriate general auditing standards assists the SAI in satisfying this requirement.
Adequate opportunity is also provided to Government to offer its comments, observations
and explanation before including any matter in an audit report.

With a view to avoid conflict between the auditor and the entity under audit, the C&AG
has promulgated Auditing Standards that prescribe the standards of professional conduct
of the officers and staff of the Indian Audit and Accounts Department (IA&AD), both in
terms of professional competence and ethics. It also prescribes the principles and
minimum standards of audit. The standards are consistent with the Act prescribing the
duties and powers of the C&AG. These are also consistent with the contemporary global
best practices, including those of INTOSAI. Apart form the standards of professional
conduct, the Auditing Standards also lay down the quality assurance system within the
institution and overall framework for the steps to be followed by auditors in conducting
and managing audit work and framework for reporting the results of audit. With a view to
ensuring that the audit by the IA&AD conforms to the standards set for it, the C&AG
have issued standing orders and various guidelines.

The auditor and the audit institutions must exercise due care and concern in complying
with these auditing standards.

This embraces due care in planning, specifying, gathering and evaluating evidence, and
in reporting findings, conclusions and recommendations. To give effect to the Auditing
Standards and his accounting responsibilities, the C&AG of India has issued two
Manuals of Standing Orders (MSOs); namely, MSO (Audit) & MSO (Accounts) .MSO
(Audit) deals with general principles and procedure for audit, reporting the results of
audit . The Manual provides detailed instructions/check-lists for various types of audits,
viz., audit of expenditure, receipts, stores and stock, commercial accounts, and non-
commercial autonomous bodies, etc. It also contains supplementary instructions for
certification, compliance and performance audits, with detailed instructions for audit of
establishment expenditure, grants-in-aid, pension, contracts, deposits, service, World
Bank and other externally assisted projects, computerized systems, public works, and
forest accounts, etc.

MSO (Accounts) deals with general principles and procedure for classification of
transactions between capital and revenue, procedure of accounting of loans and advances,
deposits, public works, forests, provident fund, pensions, etc. besides form and contents
of the monthly accounts and Finance and Appropriation Accounts.

10
In the light of widely varying, complex and vast auditee environment, the C&AG has
issued detailed subject and technique specific guidelines for each sector of audit, viz.,
Civil, Commercial, Defence, Post & Telecommunications and Railways, etc. These
guidelines contain step-by-step procedure/methodology and techniques for conduct of
audit in pursuit of the Act and Auditing Standards established for conduct of audit as well
development of the professional competence of the officers and staff.

4. Field Standards:

The purpose of field auditing standards is to establish the overall framework for the
purposeful, systematic and balanced steps that the auditor has to follow during audit
process. These steps and actions represent the rules of investigation that the auditor,
implements to achieve a specific result.

The field standards establish the framework for conducting and managing audit work.
They are related to the general auditing standards, which set out the basic requirements
for undertaking the tasks covered by the field standards. They are also related to the
reporting standards, which cover the communication aspect of auditing. The following
paragraphs elaborate the INTOSAI Field Auditing Standards followed in SAI India.

The auditor should plan the audit in a manner, which ensures that an audit of high quality
is carried out in an economic, efficient and effective way and in a timely manner.

As per para 13.3 of Financial Attest Audit Manual of SAI India, a timely, well-thought-
out and well-executed planning effort is essential to the performance of an effective and
efficient financial attest audit. In the initial planning stage, Audit should obtain or, in the
case of a recurring audit, update understanding of the auditee, its activities, operation and
control environment. This results in an overall audit plan.

11
 Detailed Audit Describing Auditee
Programmes

Audit Objectives &

Preparing Audit Plan. Scope

Determining
Assessing risk Materiality

The Auditing Standards of C&AG require that the audit will be planned in a manner
which ensures that an audit of high quality is carried out in an economic, efficient and
effective way and in a timely manner.( para 3.6 of Financial Attested Audit Manual of
SAI,India)

According to para 3.1 of Financial Attested Audit Manual of SAI (India) in order to
improve the quality of audit, detailed and well-defined planning is essential. Every year,
each office of SAI India should frame a formal detailed Audit plan in accordance with the
instructions prescribed by the concerned functional wings of Headquarters office. A
single plan will integrate and include central audit of vouchers and other records, routine
inspections, financial attest audits and performance audits. In addition to the units
selected for audit, copies of this programme is sent to the Administrative Departments,
Heads of the Departments and Chief Executives of the auditee entities concerned.

The work of the audit staff at each level and audit phase should be properly supervised
during the audit; and a senior member of the audit staff should review documented work.

According to per para 8.3 of Financial Attested Audit Manual of the Comptroller and
Auditor General of India, the work of the audit staff at each level and audit phase shall be
properly supervised during the audit, and a senior member of the audit staff should
review documented work.

12
Further, as per para 8.4 of Financial Attested Audit Manual of the Comptroller and
Auditor General of India, supervision is essential to ensure the fulfillment of audit
objectives and the maintenance of the quality of the audit work. Proper supervision and
control is, therefore, necessary in all cases, regardless of the competence of individual
auditors. The objective of supervision is to ensure that:

(a) The members of the audit team have a clear and consistent understanding of the audit
plan;
(b) The audit is carried out in accordance with the auditing standards and practices of the
C&AG,
(c) The audit plan and action steps specified in that plan are followed unless a variation
is authorized;
(d) Working papers contain evidence adequately supporting all conclusions,
recommendations and opinions;
(e) The auditor achieves the stated audit objectives; and
(f) The audit report included the audit conclusions, recommendations and opinions, as
appropriate.

Structure of supervision in SAI, India

According to para 8.3 of Financial Attested Audit Manual of SAI(India),supervision is

exercised by senior members of audit team and audit management at various levels:

 By the Group Supervisory Officer and Accountant general, during planning of the
individual financial attest audits;
 By the Audit Officer, during the course of field audit, further supervised by group
supervisory officer; and
 By the Accountant General, during review of periodic reports, monitoring and
interim appraisals.

13
The auditor, in determining the extent and scope of the audit, should study and evaluate
the reliability of internal control.

One of the main objectives of performance audit is study and evaluation of the internal
control that assist the conduct of the business of the entity in an economic, efficient and
effective manner, ensuring adherence to the management policies and producing reliable
and timely financial management and performance information. The study and evaluation
of internal control depends on the objectives of the audit and the degree of reliance
intended. ( para 4.37 of Performance Auditing Guidelines of SAI , India)

As per para 4.38, Performance Auditing Guidelines of SAI (India) the audit teams will
document the internal control system significant to the audit objectives and carry out tests
to arrive at the findings on their adequacy and actual performance. The documentation
and tests will form part of the working papers and the audit findings and conclusion will
be included in the report.

Further as per para 2.141 of Financial Attested Audit Manual of SAI (India), if Audit,
based on preliminary evaluation, decides that controls instituted in the organization are
effective and some assurance can be drawn from them, procedures to test controls are
performed. Where the internal controls are effective, audit can perform reduced
substantive testing as more assurance can be derived from controls. On the other hand,
where the internal controls are weak or ineffective, Audit has to perform more substantive
testing as little or no assurance can be derived from controls.

Competent, relevant and reasonable evidence should be obtained to support the auditor's
judgment and conclusions regarding the Organisation, program, activity or function under
audit.

As per para 2.75 of Financial Attested Audit Manual of SAI (India), in financial attest
audit, evidential matter primarily consists of underlying accounting data and all
corroborating information must be available to the auditor. The evidence is collected with
reference to the general and any special objectives of audit.

Further according to para 2.76 of Financial Attested Audit Manual of SAI (India), the
principal source of evidence for audit conclusions will be the records of the auditee. It is
the primary duty of Audit to ensure that the audit conclusions drawn about the financial
statements subjected to audit are based on sufficient, competent and relevant evidence.
Evidence must be planned, gathered and analyzed before any conclusion can be reached.

14
In conducting regularity (financial) audits / performance audits, a test should be made of
compliance with applicable laws and regulations. The auditor should design audit steps
and procedures to provide reasonable assurance of detecting errors, irregularities, and
illegal acts that could have a direct and material effect on the financial statement amounts
or the results of regularity audits. The auditor also should be aware of the possibility of
illegal acts that could have an indirect and material effect on the financial statements or
results of regularity audits.

According to para 3.33 of Financial Attested Audit Manual of SAI (India), audit team will
understand the control procedures established by the entity to:

 ensure regularity;
 ensure compliance with the legal and regulatory framework within which the
entity conducts its operations; and
 prevent and detect fraud by management, employees or third parties.

Audit team will also document the particular control procedures established in order to
ensure regularity, legality and prevention and detection of fraud. A lack of effective
control procedures usually indicates increased risk of material misstatement or
irregularity.

5. Reporting Audit Standards:

Government auditors submit different kinds of reports to the Executive and the
Legislature. The audit reporting process begins with submission of an Inspection Report
to the Head of any Office or Department which has been audited with a request to submit
replies and clarifications/comments on the audit observations. Depending on the veracity
and relevance of replies/clarifications received and the materiality of the observations in
the Inspection Reports, these are further processed for reporting in the Audit Report
submitted by the SAI for being placed in the concerned Legislature. The following
paragraphs elaborate the INTOSAI Reporting Audit Standards followed in SAI India.

On the completion of each audit assignment, the Auditor should prepare a written report
setting out the audit observations and conclusions in an appropriate form; its content
should be easy to understand, free from ambiguity and supported by sufficient, competent
and relevant audit evidence and be independent, objective, fair, complete, accurate,
constructive and concise.

15
Article 151 of the Constitution of India, requires the C&AG to submit reports relating to
the accounts of the Union and of a State to the President or the Governor of the State as
the case may be for being placed before Parliament/Legislature of a State.

Further, Section 21 of the C&AG’s (Duties, Powers and Conditions of Service) Act, 1971
authorizes the C&AG to delegate any power exercisable by the C&AG under the
provisions of the Act, or any other law, to any officer of his department, by general or
special order. However, except during his absence on leave or otherwise, no officer shall
be authorized to submit on behalf of the C&AG any report which the C&AG is required
under the Constitution or the Government of Union Territories Act, 1963, to submit to the
President or the Governor of a State or the Administrator of a Union Territory.

As per para 2.148 of Financial Attested Audit Manual (FAAM) of SAI (India), reporting
is the last activity in the audit process and involves preparation of audit report
(certificate) which contains the audit opinion on the financial statements. A management
letter may also be issued to the management of the auditee indicating the weaknesses in
internal controls. ( Para 2.149 of FAAM)

Further, as per para 6.4 of the Performance audit guidelines of SAI (India), the following
points need to be emphasised in regard to performance audit reports:

 All pertinent information required to satisfy the audit objective ( scope, criteria,
evidence, conclusions and recommendations) must be available in the report;
 The obligation for the audit report to be accurate implies that the evidence
prescribed is true and the conclusions are correctly portrayed;
 The objectivity of audit report is ensured through fair conclusions and balanced
content and tone;
 The audit report is convincing if the results of audit are presented persuasively
and the conclusions and recommendations followed logically from the facts
presented;
  A report is balanced if it does not focus on criticism alone but contains fair
assessment or evaluation, which would mean that good performance should also
be reported;
 Consistency of the report is secured by ensuring that it does not contain
contradictory findings or conclusions in similar contexts or the conclusions on the
same segment in different sections or parts of the report are not incompatible;
 The report is constructive if it manifests a remedial approach rather than a
critical approach and includes appropriate recommendations;

16
  The acquiescence to the report, including of the audit conclusions and
recommendations grows with display of entity cooperation, entity responses, audit
methodology, audit criteria and evidence, etc. within the performance audit
reports.

As per para 6.18 of performance audit guidelines of SAI (India), the presentation and
language of the audit report should abide by the ‘style guide’ of SAI India. The essence of
the style guide is to adopt uniform format and language, render the report simple and
reader friendly as well as interesting.

The audit report may be presented on other media that are retrievable by other users
and the audit organizations. Retrievable audit reports include those, which are in
electronic formats and maybe released on the Internet

According to para 6.31 of Performance Audit Guidelines SAI,India, modern publishing

techniques will be used to highlight in box form (i) significant audit conclusions and (ii)
to explain the technical terms and more importantly, technical processes used in the
performance audit reports. The distinction in presentation between the highlights of
significant audit findings and explanation of technical procedures, etc. may be achieved
with help of formatting and publishing techniques, including different backgrounds and
font colours. The audit reports of central government and state government are available
on the website of SAI India for the stakeholders.

As a result of a comprehensive External Communication Policy of the SAI, India, there is

now greater interest and understanding in media, both electronic and print, about the role
of the Comptroller and Auditor General of India in promoting good governance.

Adequate, prompt and proper follow up action by the entity on and in the light of audit
conclusions projected will enhance the effectiveness of audit and promote public
accountability

As per para 4.45 of the Performance Audit Guidelines, the audit findings can be
communicated to the entity, including to the chief of the filed units, as and when these are
developed. It will ensure that the matters of facts, figures and most of the findings or
conclusions are accepted as the audit proceeds. The entity responses to the audit findings
can then be documented and analysed. Where the entity disagrees with the audit findings,
the reasons for such disagreement should be fully analysed. If the audit objectives have
been communicated to the entity, audit criteria accepted by it and no disagreement exists

17
on the audit findings, supported by competent, relevant and reasonable evidence, the
chances are that the recommendations, which are the actions suggested to remedy the
deficiencies, may be acceptable in most cases.

According to para 6.21, It is important that the entity is persuaded to provide written
response to the draft performance audit report. This may be achieved through
correspondence, personal meetings and presentation of the draft audit report. A formal
response, apart from ensuring compliance to the orders of the government, issued mostly
at the behest of Parliamentary/legislative committees demonstrates earnestness of the
entity in implementing the recommendations of audit for improvement in programme
management.

As per para 6.22 of Performance Auditing Guidelines, since the audit report is presented
to the Parliament/state legislature, it is crucial that the response of the entity has the
approval of the secretary of the ministry department. Accountants General may evolve
procedures to assure that the response by the entity is issued by or with the approval of
the secretary and an indication to this effect is given in the latter case.

Further, According to para 6.29 of the Performance Audit Guidelines, all matters of
facts/figures/evidence, audit findings and conclusions included in the report should have
been accepted by the entity by the time the final report is prepared. Thus, in so far as the
entity and the SAI are concerned, the action would revolve around implementation of the
recommendations and follow-up respectively. In addition significant audit findings on
sensitivity and effectiveness of the internal control system to ensure that the management
recognised major causes of underperformance brought out in internal or external
studies/reports, including past audit reports and the remedial measures may be included.
Also the audit findings on the sensitivity of the management to various error signals
generated through internal inspections, valuations, media reports, complaints, study by
interest groups, etc. and effectiveness of the action taken may be also be included.

Systems and procedures should be in place and implemented for securing appropriate
conclusions and preventive follow up action on audit reports. In subsequent audits and
otherwise, the Auditor should examine and report whether satisfactory action was taken
on the audit reports.

Follow-up action on Audit reports in SAI, India:

Follow-up activities on Audit Reports are essentially directed towards ensuring

implementation of the recommendations i.e., the focus is on the correction to the
previously identified weaknesses.

As per para 8.4 of the Performance Audit Guidelines of SAI, India, the performance
audits which are selected by the committees of the Parliament/state legislature for
detailed examination and oral evidence should be pursued in the context of the decisions

18
of the respective committees. However, if the examination and issue of recommendations
by the committees of the Parliament/ state legislature have not taken place, Audit
department may continue to pursue the follow-up on recommendations as in the cases
where the subject is not selected for detailed examination.

Further, According to para 8.6 of the Performance Audit Guidelines of SAI, India, the
ministries and departments are to forward the ‘action taken note’ against all matters
included in the report of the Comptroller and Auditor General to the Parliamentary
/Legislative Committees within the prescribed time. The ‘action taken note’ is vetted by
Accountants General for correctness of facts and figures, adequacy of the remedial
measures and explanations for underperformance before they are submitted to the
committees of the Parliament/ Legislature. The ministries and departments submit the
‘action taken notes’ after attending to the comments of Accountants General. In
exceptional cases, they may include the vetting comments of Audit along with a response
to the comments before submission of the notes to the committee.

6. Conclusion:
A number of far-reaching changes have occurred in the realm of finance and
governmental activities over the years and auditing has had to keep pace with these
changes. This process has resulted in statements covering almost every aspect of auditing
being brought together to become Auditing Standards for use by profession. These
Standards aim to improve the auditing practices. The Auditing Standards provide a
framework for the auditing steps and procedures. Moreover, the fact that an audit has
been conducted in accordance with certain standards gives necessary reassurance to
people making use of the financial statements and audit reports.

The auditing standards of the International Organization of Supreme Audit Institutions

(INTOSAI) have been suitably adapted with due consideration of the Constitution of
India, relevant Statutes and rules for the auditing standards for the Supreme Audit
Institution of India (SAI). With a view to ensuring improvement in quality of audit
process and to avoid conflict between the auditor and the entity under audit, the SAI,
India has promulgated Auditing Standards that prescribe the standards of professional
conduct of the officers and staff of the Indian Audit and Accounts Department (IA&AD),
both in terms of professional competence and ethics. The standards are consistent with
the Act prescribing the duties and powers of the C&AG. Apart form the standards of
professional conduct, the Auditing Standards also lay down the quality assurance system
within the institution and overall framework for the steps to be followed by auditors in
conducting and managing audit work and framework for reporting the results of audit.
-----------------------------------------------------------------------------------------------------------

19