Para 2.6.22 — MSO (Audit)
Original Rule Text
2.6.22 The same systems approach should be adopted in regard to audit of accounts and of transactions of any institution regardless of whether the audit is undertaken as a sole auditor or otherwise. As the first step, the adequacy of various accounting systems and procedures, whether set out in the form of a manual or otherwise, should be examined and the extent of check of individual transactions should be determined based on the results of such examination. This is all the more necessary since generally only a small percentage of the transactions is checked in audit and Audit cannot escape responsibility if significant deficiencies in the accounting systems and procedures lead to misuse or abuse of public monies Though Audit cannot insure against defalcation and frauds, the possibility of their occurrence should be duly kept in mind while preparing for and conducting audit.
What This Means
Regardless of whether the CAG is the sole auditor or shares audit responsibility, auditors must first evaluate the institution's accounting systems and procedures before diving into individual transactions. Based on how robust or weak the systems are, the auditor decides what percentage of transactions to check in detail. Since only a small sample of transactions gets audited, it is critical that systemic weaknesses capable of enabling fraud or misuse are identified upfront.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1The systems approach applies uniformly whether CAG is sole auditor or joint auditor
- 2Adequacy of accounting systems and procedures must be examined first
- 3Sample size for transaction checking depends on systems evaluation results
- 4Weak systems demand deeper scrutiny of individual transactions
- 5Auditors must remain alert to fraud and defalcation risks even though audit cannot guarantee detection
Practical Example
An audit party begins auditing a State Water Board. Before checking individual payment vouchers, they review the Board's accounting manual, internal control procedures, and delegation of financial powers. They find that the purchase approval process lacks segregation of duties — the same officer raises demand, places orders, and certifies receipt. Based on this systemic weakness, the team decides to check 80% of purchase vouchers instead of the usual 20% sample.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is the 'systems approach' in audit?▼
Can CAG be held responsible if fraud goes undetected?▼
Does this apply to institutions where CAG is not the sole auditor?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.