Audit Note Book

Audit Note Book

Meaning

Audit Note Book is a register maintained by the audit staff to record important points observed, errors, doubtful queries, explanations and clarifications to be received from the clients. It also contains definite information regarding the day-to-day work performed by the audit clerks. In short, audit note book is usually a bound note book in which a large variety of matters observed during the course of audit are recorded. The note book should be maintained clearly, completely and systematically. It serves as authentic evidence in support of work done to protect the auditor against any legal charge initiated against him for negligence. It is of immense help to the auditor in preparing audit report. It also acts as a valuable guide for conducting audit for future years.

Example:

Following are the queries made in the

Audit Note Book:

1.  Voucher No.75 Paid towards advertisement expenses for Rs. 3,50,000.

2.  Voucher No.170 Rent paid Rs. 22,000.

3.  Voucher No.98 Material purchased and received in Stores for Rs. 58,375

4.  Voucher No.245 Machinery purchased for Rs. 7,28,000.

Contents of Audit Note Book

The following matters should have been incorporated in an Audit Note Book.

1. A list of the account books normally used and maintained.

2. Names of the principal officers, their duties and responsibilities.

3. Nature of business carried on and important documents relating to the constitution of business like

Memorandum of Association, Articles of Association, Partnership deed etc.,

4. Extracts of minutes and contracts affecting the accounts.

5. Extracts of correspondence with statutory authorities.

6. Copy of audit programme.

7. Accounting methods, internal control and internal check system in operation.

8. Routine queries like missing receipts and vouchers etc.

9. Details of errors and frauds discovered during the course of audit.

10. Points to be included in audit report.

11. Details of all important information to be used as reference for future audits.

12. Date of commencement and completion of audit.

Advantages of Audit Note Book

1.        Facilitates Audit Work: It facilitates the work of an auditor as all important details about the audit are recorded in the note book which the audit clerk cannot remember everything at all the time. It helps in remembering and recalling the important matters relating to the audit work.

2.        Preparation of Audit Report: Audit note book helps in providing required data for preparing the audit report. An auditor examines the audit note book before preparing and finalizing the audit report.

3.        Serves as Documentary Evidence: Audit note book serves as a documentary evidence in the court of law when a suit is filed against the auditor for his negligence.

4.        Serves as a Guide: When a audit assistant is changed before the completion of audit work, audit note book serves as a guide in completion of balance work. It also acts as a guide for carrying on subsequent audits.

5.        Evaluating Work of Audit Staff: It helps to assess the work performed by the audit staff and helps in evaluating their level of efficiency.

6.        Fixation of Responsibility: Audit note book helps in fixing responsibility on concerned clerk who is responsible for any undetected errors and frauds in the course of audit.

7.  No Dislocation of Audit Work: An audit note book contains all important details about audit hence any change in the audit staff will not disturb or dislocate the audit work.

Disadvantages of Audit Note Book

1.  Fault-finding Attitude: It leads to development of a fault-finding attitude in the minds of the staff.

2.  Misunderstanding: Very often maintenance of audit note book creates misunderstanding between the client’s staff and the audit staff.

3.  Improper Preparation: Since it serves as evidence in the court of law, it needs to be prepared with great caution. When the note book is prepared without due care it cannot be used as evidence against the auditor for negligence.

4.  Adverse Effects on Subsequent Audits: Since audit note book is used in performing subsequent audits, any mistakes in the note book may have adverse impacts on the next audit.

Guidelines and Standards issued by The Institute of Chartered Accountants of India (ICAI)

1. AS – Accounting Standards

2. AAS – Auditing and Assurance Standards

3. International Standards on Auditing (ISA) was issued by the International Auditing and Assurance Standards Board (IAASB) which was later modified as Standard Auditing Practices (SAP) by the Institute of Chartered Accountants of India.