Responsibilities of external auditors

(i)In order to discharge responsibilities and duties, auditor shall have the right of access at all times to the books, papers, accounts and vouchers of the company, whether kept at the registered office of the company or elsewhere.
ii. Auditor shall be entitled to require from the company and the directors and other officers of the company such information and explanation as he thinks necessary for the performance of his duties.
iii. It is the prime responsibility of auditor to make a report to the members of the company on the accounts and books of the company and on every financial statement which are laid before the company in general meeting during his tenure of office.

2. INTERNATIONAL STANDARDS ON AUDITING
To extend this articles,i post a summarised ISA's that candidates should take a look upon..and guess what?of course its important..just a short&concise ISA's..but you should know the overall ISA's first which were taught by your lecturer/by revising notes or by surfing www.ifac.org

2.1 ISA # 200 – Objective and general principles governing an audit of financial statements
i. The auditors can discharge their responsibilities with confidence only when they possess the professional qualities which includes independence, integrity, objectivity, professional competence and due care, confidentiality, professional behavior and technical standards.
ii. The auditor should comply with the following Code of Ethics for Professional Accountants issued by the International Federation of Accountants:
a. Integrity and objectivity
b. Resolution of ethical conflicts
c. Professional competence
d. Confidentiality
e. Tax Practice
f. Activities outside Pakistan
g. Publicity and advertising by Chartered Accountants
h. Other occupations in which Chartered Accountants can engage without Council’s permission.
i. Independence
j. Professional competence and responsibilities regarding the use of non-accountants.
k. Fees and commission
l. Clients’ monies
m. Relations with other Chartered Accountants in practice.
iii. The auditors should conduct an audit in accordance with International Standards on audit (ISA).
iv. The auditor should plan and perform an audit with an attitude of professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. The attitude of professional skepticism means the auditors makes a critical assessment with a questioning mind of the validity of audit evidence obtained.
v. The procedures required to conduct an audit in accordance with ISAs should be determined by the auditor having regard to the requirements of ISAs , relevant professional bodies , legislation , regulations and where appropriate , the terms of the audit engagement and reporting requirements.

ISA # 210 – Terms of audit engagements
i. It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement. The engagement letter documents and confirms the auditors’ acceptance of the appointment, the objective and scope of the audit, the extent of the auditors’ responsibilities to the client and the form of any reports.
ii. On recurring audits, the auditor should consider whether circumstances require the terms of the engagement to be revised and whether there is a need to remind the client of the existing terms of the engagement.
iii. The auditor should not agree to a change of engagement where there is no reasonable justification for doing so. If the auditor is unable to agree to a change of the engagement and is not permitted to continue the original engagement, the auditor should withdraw and consider whether there is any obligation, either contractual or otherwise, to report to other parties, such as the board of directors or shareholders, the circumstances necessitating the withdrawal.

ISA # 220 – Quality control for audit work( relevant to ACCA paper 3.1)
i. The audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with ISAs or relevant national standards or practices, which should be communicated to its personnel in a manner that provides reasonable assurance that these are understood and implemented.
ii. The objectives of the quality control policies to be adopted by an audit firm will ordinarily incorporate the following
a. Professional requirement: This includes principles of independence, integrity, objectivity, confidentiality and professional behavior.
b. Skills and competence of audit personnel: who have attained and maintain the professional standards required to enable them to fulfill their responsibilities with due care.
c. Assignment to personnel: who have the degree of technical training and proficiency required in the circumstances.
d. Delegation: there is to be sufficient direction, supervision and review of work at all levels to provide reasonable assurance that the work performed meets appropriate standards of quality.
e. Consultation: Whenever necessary, consultation within or outside the firm is to occur with those who have appropriate expertise.
f. Acceptance and Retention of Clients: An evaluation of prospective client and a review of existing clients, on an ongoing basis, should be conducted. In making a decision to accept or retain a client, the firm’s independence and ability to serve the client properly and the integrity of the client’s management are to be considered.
g. Monitoring: The continued adequacy and operational effectiveness of quality control policies and procedures is to be monitored.
iii. The auditor should implement those quality control procedures which are, in the context of the policies and procedures of the firm, appropriate to the individual audit.

ISA # 240 – The auditors’ responsibility to consider fraud and error
i. While this ISA focuses on the auditor’s responsibilities with respect to fraud and error in an audit of financial statements, the primary responsibility for the prevention and detection of fraud and error rests with both those charged with governance and the management of the entity.
ii. When planning and performing audit procedures and evaluating and reporting the results thereof, the auditors should consider the risk of material misstatements in the financial statements resulting from fraud and error.
iii. In planning the audit, the auditor should discuss with other members of the audit team the susceptibility of the entity to material misstatements in the financial statements resulting from fraud or error. The auditors should have knowledge of fraud risk factors which are set out in Appendix to this ISA 240.
iv. When the auditor identifies a misstatement resulting from fraud or a suspected fraud or error, the auditor should consider the auditor’s responsibility to communicate that information to management, those charged with governance and, in some circumstances, to regulatory and enforcement authorities.

2.6 ISA # 250 – Consideration of laws and regulations
i. When planning and performing audit procedures and in evaluating and reporting the results thereof, the auditor should recognize that noncompliance by the entity with laws and regulations may materially affect the financial statements.
ii. In order to plan the audit, the auditor should obtain a general understanding of the legal and regulatory framework applicable to the entity and the industry and how the entity is complying with that framework. Further the auditor may also identify instances of noncompliance by inspecting correspondence with the relevant licensing or regulatory authorities.
iii. The auditor should either communicate with the audit committee, the board of directors and senior management or obtain evidence that they are appropriately informed regarding noncompliance that comes to the auditor’s attention.
iv. If the auditor concludes that the noncompliance has a material effect on the financial statements, and has not been properly reflected in the financial statements, the auditors should express a qualified or an adverse opinion.
v. If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to evaluate whether noncompliance that may be material to the financial statements has or is likely to have occurred, the auditor should express a qualified opinion or a disclaimer of opinion on the financial statements on the basis of a limitation on the scope of the audit.

ISA # 700 – The auditors’ report on financial statements (*Important)
i. The auditor should review and assess the conclusions drawn from the audit evidence obtained as the basis for the expression of an opinion on the financial statements.
ii. The auditor’s report should contain a clear written expression of opinion on the financial statements taken as a whole.
iii. The auditor’s report should includes (a) title e.g. auditors’ report(b) addressee as required by the circumstances of the engagement and local regulations e.g. members of the company (c) introductory paragraph to identify financial statements audited and a statement of the responsibility of the entity’s management and the responsibility of the auditor (d) Scope paragraph to give reference to the ISAs or relevant national standards or practices and the description of the work the auditor performed (e) Opinion paragraph (f) date of the report (g) auditor’s address and (h) auditor’s signature. The contains of Auditor reports attached to the Companies (General Provisions and Form) Rules 1985 conform to these requirements of ISA.
iv. In certain circumstances, an auditor’s report may be modified by adding an emphasis of matter paragraph to highlight a matter affecting the financial statements which is included in a note to the financial statements that more extensively discusses the matter. The addition of such an emphasis of matter paragraph does not affect the auditor’s opinion.
v. Auditor should express qualified opinion when he concludes that an unqualified opinion can not be expressed but that the effect of any disagreement with management or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.
vi. Auditor should express a disclaimer of opinion when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.
vii. Auditor should express an adverse opinion when the effect of a disagreement with the management is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
viii. Whenever the auditor expresses an opinion that is other than unqualified , a clear description of all the substantive reasons should be included in the report and , unless impracticable , a quantification of the possible effect on the financial statements , which is also required under the Companies Ordinance 1984 as stated in Para 1 (1.1) (iv) above.

ISA # 710 - Comparatives (doesn't seem important,but at least you should know)
i. The auditor should determine whether the comparatives comply in all material respects with the financial reporting framework relevant to the financial statements being audited.
ii. The auditor should obtain sufficient appropriate audit evidence that the corresponding figures and the comparative financial statements meet the requirements of the relevant financial reporting framework.
iii. When the comparatives are presented as corresponding figures, the auditor should issue an audit report in which the comparatives are not specifically identified because the auditor’s opinion is on the current period financial statements as a whole including the corresponding figures.
iv. When the comparatives are presented as comparative financial statements, the auditor should issue a report in which the comparatives are specifically identified because the auditor’s opinion is expressed individually on the financial statements of each period presented.
v. The incoming auditor’s report should state that the prior period was audited by another auditor and the incoming auditor’s report should indicate (a) that the financial statements of the prior period were audited by another auditor (b) the type of report issued by the predecessor auditor and if the report was modified, the reasons therefore and (c) the date of that report.
vi. When the prior period financial statements are not audited, the incoming auditor should state in the auditor’s report that the corresponding figures and the comparative financial statements are unaudited. If the prior year unaudited figures are materially misstated, the auditor should request management to revise the prior figures or if management refuses to do so, appropriately modify the report.
-fin~-

I just wanna share with you some of cases due to auditors' irresponsibillties.It is not examinable in paper 2.6,for 3.1 maybe you want to state the case for and against.
. Newton vs. Birmingham Small Arms Co. Ltd _ 1906
. Armitage vs. Brewer and Knot – 1932
. Leeds estate Building and Investments Co. vs. Shepherd – 1887
. London Oil Storage Co. vs.Seear , Hasluck & Co. – 1904
. Irish Woolen Co. vs. Tyson and others – 1900
. London and general Bank Ltd. – 1895
. The Kingston Cotton Mills Co. Ltd – 1896
. Westminster Road Construction and Engineering Co. Ltd – 1932
. Royal Mail Steam Packet Co – 1931
. Enron - 2001
. Health South Corporation – 2002
. WorldCom - 2001
. Tyco - 2002
The cases listed above confirms that the audit cases due to negligence and misfeasance have occurred throughout the last 150 years or so and so-called corporate scandals committed in 2001 and onward like Enron and WorldCom are not something new or unique in this regards.
The Chief Financial Officers (CFO) of these companies were non- professional accountants like the CFO at Enron was MBA, the CFO at WorldCom had a business administration degree and that of Global Crossing had a doctorate in finance and public policy. The professional accounting training, qualification and experience instills a respect for numbers and a deeper understanding of accounting and financial reporting standards. On the other hand, it is felt that MBA, as a head of finance, stresses creativity and focuses on financing activities. It is this lack of knowledge of fundamental accounting issues and reporting standards that has many such CFO’s in such a difficult position when managing corporate earnings.

source: Syed Imtiaz Abbas Hussain (Fellow Institute of Chartered Accountants of Pakistan)