Course Code: 7204

Course Name: Advanced Auditing / Philosophy of Auditing

# This course is:

(1) Reading Based,
(2) Theory Based and
(3) Handout based Course.
# From Technicalities to theories. The reason behind is for the comprehension and perception
of Audit Philosophies.
# From a General Point of View Audit is an opinion expressed on the fairness of the preparation
and presentation of Financial Statements.
# The opinion provides an assurance which is reasonable not Absolute or 100% assurance.
# From absolute assurance to reasonable assurance.
*** What is the difference between Opinion and Decision?
Decision is binding , but opinion is not binding (not binding is the prerogative of the
person giving the opinion),
Decision by Judge, Opinion by Doctor.
# The meaning of being lies in philosophizing your existence. You must know the cause of
effect relationship of being. Socrates thus said What is the purpose of mans existence and
actions?. "The unexamined life is not worth living." according to Socrates. He believed we must
strive towards the Good, or Truth, which for him was the Forms. He believed a love of wisdom
(philosophia) was good for the soul. Aristotle said that A man is truthfully nature in the whole
context he said Man is by nature a social animal; an individual who is unsocial naturally and not
accidentally is either beneath our notice or more than human. Society is something that precedes
the individual. Anyone who either cannot lead the common life or is so self-sufficient as not to
need to, and therefore does not partake of society, is either a beast or a god. Both the quotes
held the spirit of men highly.

# Why always serial Killers/ psychopaths/ sociopaths comes from a broken family, where
person lacks human bondage, which made them devoid of human conscience and humane
feelings. (part of social facets in Strategic Management)
# Strategoes (Greek word for Commandment of the Generals), involved a combative spirit,
necessarily with weapons etc.

# But the combative spirit of business do not involve fighting with weapons but with business
strategies.
# Man can be either guided by motivation or misguided by it.
### Audit is a discipline, specifically a Demand Driven Discipline (DDD).
# Adam Smith (1776) said that Management has an inherent tendency to manipulate,
# Milton Friedman (1962) the radical open economy apologist said that the only purpose of
business is to earn profit within the rule of the game. He also believed that the social
conscience of a business is to increase profit, and thus the obligation and contribution toward
society is done.

Why there is Inherent Tendency to Manipulate?

(1) Separation of Ownership and Control,
(2) Change in Management Structure, (since the Industrial Revolution) and
(3) Change in Financing Pattern.

# There was something called the Manorial System in Britain. Or in Bengali Rvwgb`vix eev
| In Bangladesh it was only abolished in the 1950s by the Prime Minister of Bengal Sher-eBangla A k Fazlul Huq and the first President of Pakistan Iskander Mirza who was a Bengali (he
was the Great Grandson of the traitor Mir Jafar). Manorial System was responsible for the arrival
of Auditing. It also had an Agency Relationship in a primitive form.

A short Prose on Manorial System:

Landlord and peasant: 9th - 15th century
Life on a manor is the medieval version of a relationship which
occurs, between landlord and peasant, in any society where a
leisured class depends directly on agriculture carried out by
others. Such landlords may be patricians living in their Roman
villas (seen by many historians as the original version of the
European manor) or feudal knights ensconced in castles and
fortified manor houses (a development dating from Carolingian
times).

On the other hand a cooperative labor force is more productive

than a resentful one, so the lord of the manor may be inclined to
use his natural advantages with moderation. And occasionally,
when labor is in short supply - as after the Black Death in the 14th
century - the peasants themselves acquire a measure of economic
strength.

The knight has force on his side. Even in normal circumstances he

may be able to terrify his peasants into subjection. In unruly times
- characteristic of much of the Middle Ages - his armor becomes

The resulting balance of power varies greatly in different places

and times. There is an important distinction between free peasants
(theoretically able to leave a manor at will, though economically
often unable to do so) and serfs. Serfs are the descendants either of
slaves who have been given a measure of freedom, or of free
peasants who have accepted legal restrictions in return for the
lord's protection.
Serfs are slaves only in the one crucial sense of being tied to their
lord's land. That distinction comes to seem a quibble where
serfdom continues into modern times (as in Russia in the 19th
century), outlasting the abolition of true slavery.

even more significant. The peasants need his protection from

marauding enemies. They are less likely than usual to assert
themselves.

The system of labor and of rent which develops on a medieval

manor is also immensely variable. It is further complicated by the
fact that part of any manor (the demesne) is farmed by the lord on

Records suggest that the work of between fifteen and thirty peasant
families is required to support one knight's family (and
correspondingly more for a baron holding court in a castle). The
relationship between the knight and his peasants is the manorial
system.

his own account, using peasant labor, and part is cultivated by the
peasants for their subsistence - paying the lord some form of rent,
whether in natural produce, days and weeks of their own labor, or
money
.
Gradually, as in any long-established social system, the lords
devise more and more dues to supplement their revenue. These
may be direct taxes (such as 'heriot', the lord's right to the best
beast every time the head of a peasant family dies) or fees for the
functions of the manorial court.

The manorial court: 9th - 15th century

The court is the judicial basis of the manorial system. In the
decentralized and unruly regions of medieval Europe, some
measure of control is achieved by giving lords legal powers over
the peasants on their manors.
A large estate will consist of many manors, acquired not only by
feudal grant but also by marriage, purchase and even outright
seizure. The lord or his representatives move from one manor to
another, holding court and consuming the produce gathered since
their last visit. The court dispenses justice for crimes committed on
the manor, hears civil disputes between tenants, and collects rents,
fines and fees.

Fees are claimed by the lord of the manor on a wide range of

events in the life of the community. They may be required for the
issue of a legal document, for the buying and selling of property
and even - most notoriously - for permission to marry.
These rights over the community last long after the economic basis
of the manor has crumbled. They are the final residue of feudalism,
and the most resented. Beaumarchais' radical comedy The
Marriage of Figaro (staged just four years before the French
Revolution) hinges on the question of whether the count will give
permission for the wedding - or will attempt to revive a less
authentic seigneurial right to the bride's virginity.

This supposed right, known as the jus primae noctis (right of the
first night) or droit du seigneur (right of the lord), gives an
intriguing glimpse of the nature of the manorial system at the time
when feudalism is declining into decay and corruption.
There is no evidence that any lord ever claimed this outrageous
prerogative, but there are several cases of people in the late
Middle Ages paying money to avoid the exercise of the jus primae
noctis. It is an unusually imaginative example of the feudal system
of rights and privileges, with their inherent potential for abuse.
Farming the manor: 9th - 18th century

Ploughing too is a communal affair. The heavy wheeled plough

needed for northern soils is expensive, as are horses to pull it. So a
team of horses and plough works successive strips of an open field
for different peasants. The long narrow shape of the strips reflects
the difficulty of turning the team at each end.

The Frankish empire under Charlemagne is the source of

feudalism and the manorial system. It also introduces a related
revolution in agriculture.
Rotation of crops to conserve the soil has been a standard part of
agricultural practice since the Neolithic Revolution. The classic
method is the simple two-field system. Of every two fields, one is
planted each year (in Europe with wheat, barley or oats). The
other is allowed to lie fallow, grazed by the cattle and fertilized by
their manure.

The Franks introduce a major improvement, extending the rotation

to three fields. One field is now planted in the autumn with winter
wheat or rye. One field is planted in the spring with oats, barley or
vegetables such as peas and beans. The third field is left fallow.
The new arrangement requires summer rain for the crop planted in
the spring, so it is suitable only in the cooler regions of Europe. It
seems to have been introduced, perhaps in the late 8th century,
between the Loire and the Rhine.
The advantages are considerable. The most obvious is an increase
of one third in the crop (previously 50% of the land was producing
each year, now the figure is 66%). The work of preparing and
harvesting the fields is more efficiently spread out through the
year. The ripening of crops in two seasons rather than one reduces
the risk of famine from freak weather.
And there is a benefit, in terms of health and variety, in the
addition of vegetables to a previously all-grain diet.

Strip-farming and enclosure: 9th - 20th century

The fields of a medieval manor are open spaces divided, almost
imperceptibly, into long narrow strips. Only the fields being grazed
by cattle are fenced. The others are open and are identifiable as
separate fields only by the crops which they bear. The unusual
detail is that the single crop in each field is separately farmed - in
individual strips - by peasant families of the local village.
Some of the strips may also belong to the local lord, farmed for
him by the peasants under their feudal obligations. But more often
the lord's land is in a self-contained demesne around the manor.
Strip-farming is central to the life of a medieval rural community.
It involves an intrinsic element of fairness, for each peasant's
strips are widely spread over the entire manor; every family will
have the benefit of good land in some areas, while accepting a
poor yield elsewhere.
The strips also enforce an element of practical village democracy.
The system only works if everyone sows the same crop on their
strip of each open field. What to sow and when to harvest it are
communal decisions. The field cannot be fenced, or the cattle let
into it, until each peasant has reaped his own harvest.

In addition to the open fields, each village or manor has common

land where peasants have a right to graze cattle, collect wood, cut
turf and perhaps catch fish.

Landlord, tenant and laborer: from the 13th century

From about the 13th century there are pressures on this
agricultural system for two different reasons. One is the wish to
rationalize the use of the land by changing each peasant's rights
from scattered strips to a unified plot surrounding a family
cottage. There is considerable resistance to this, because it
eliminates the old safeguard by which good and poor land was
evenly shared out.
The other motive is the greed of lords of the manor, who regularly
attempt to enclose the common land and incorporate it in their
own demesne.
Enclosure of common land causes particular unrest, not only for
the loss of an ancient right but because the poorest peasants (those
who lack a share in the open-field system) rely on these pastures
and woods for subsistence.

The issue becomes a crisis at different times in different parts of

Europe, in some places even in the 20th century. But the trend is
everywhere the same - transforming the open fields of the Middle
Ages into the fenced, hedged or walled fields of the individual
farms which are characteristic of today's landscape. The gradual
move towards enclosure brings with it a change in the employment
system in European agriculture. The feudal relationship of lord
and peasant (with payments to the lord made in the form of labor,
sometimes commuted for money) gives way to a system of
landlord, tenant and laborer which is entirely based on money. The
tenant pays money to the landlord for the use of his land; the
landlord pays money to the laborer for his work.
In broad terms the free peasants, who have owned a share of the
land in the open-field system, become the tenants. The serfs
become the laborers.

The new system probably begins during the prosperous 13th

century. With the growth in national and international trade, the
subsistence farming of the feudal manor is unable to meet the
demands of the market. England is one of the first regions to make
the change, owing to its prosperous trade with Flanders in wool
(by its nature sheep-farming is ill-suited to the open-field system).
In the 14th century a different pressure continues the process;
shortage of labor after the Black Death leads to an increased use
of wages to pay for work done in the fields.
The change gradually introduces the system of land tenure and
labor which has prevailed in most of Europe ever since.

# In summary, the Land owners appointed agents to maintain their resources on their behalf as
the landlords were unable to do it by themselves. Similar to which is todays corporate culture.
Government Body => Director,
Executive Body => Functional .
# The essence of Manorial system of that time and todays time is in regards to agency
relationship is almost similar.
# Manorial System was institutionalized by Luca Pacioli but :
(1) Not by Functional Imperatives ,
(2) But by Spiritual Guidance.
4 Words:
(1) Accounter,
(2) Accountee, (to whom we are accountable)

(3) Accounts,
(4) Accountability.
These 4 words did not came into being in the Industrial revolution or manorial system but came
much before that. The genesis of Auditing is essentially connected with the genesis of
Accounting.

### Father of Accounting was Luca Paciolo but the mother of Accounting was
..Necessity.
# Demands are needs backed by economic capability ,divided into two types: (1) Created
Demand (2) Acquired Demand.
Types of Value Addition:
(1)
(2)
(3)
(4)

Intellectual ,
Economic,
Social,
Physical / Material.

# Value addition in the society are due to Internal Driven Compulsions (or, Compulsion of
Internal Drives ? )
# Taking a class or attending a class has an Economic Compulsion.
# But a Franciscan Monk like Luca Pacioli didnt contribute to the realm of knowledge or Added
Value to the Society for any economic reason, they did it as he believed it was his spiritual
duty to the society , i.e., (1) Identify with the spirit of his profession, (2) Accountability guided
him (spiritually) to the people also he had (3) Personal Accountability.
# We know that Law is the minimum obligation to the society and state to be followed by a
Citizenry but Ethical Standards go beyond the minimum standard, as we can do more out of our
social conscience. For example Apex Groups minimum wage is more than 10,000 where the
minimum wage is 5,200 .
# New term Pillar of Ethics.
# Auditing starts where Accountability ends.
Accountant is not an Auditor.
3 Words related to Value Addition:
(1) Economy (Input Utilization),
(2) Efficiency (Process Utilization),
(3) Effectiveness (Output Utilization).

Every Auditor is an Accountant but every

The word audit is derived from a Latin word "audire" (audio) which means "to hear". During the
medieval times when manual book-keeping was prevalent, auditors in Britain used to hear the
accounts read out for them and checked that the organization's personnel were not negligent or
fraudulent. The Accountability and Audit of Governments made the following
remark: Without audit, no control; and if there is no control, where is the seat of power? All in
all, an audit function plays a critical role in maintaining the welfare and stability of the society.
# Audit is related to Examination but also an Independent one.
# Independent Examination is the most important trait of audit.
# At earlier stages the issue of independence was implied and vague but today it is explicit.
# Luca Pacioli Institutionalized the accountability and introduced the issue explicitly. He also
started to record the purchases of his Monastery in Sansepolcro.
# Accountability is one thing which goes beyond ones death. People can be judged by their
accountability.
# Auditing is not a risky profession. The element of risk lies with the Management who are
responsible for the preparation of FSs.
# Posterity of Management will be also manipulative and unpredictable.
# Shareholders cannot judge the Management , but students can easily judge the Teacher.
Managements dishonesty and inefficiency is masked by their manipulation.
# Toshiba faced an accounting scandal in April-June, 2015 due to a $1.2b overstatement of profit
(primary reports said $780m), as it failed to charge the impairment loss of its Nuclear plants and
Semiconductor Plants. Which resulted in the firing of 9 top executives of the company including
the President of the Company Hisao Tanaka.
# Manipulation is not always attributed to managements fraudulence but also on managements
lack of Intuitive analysis and also due to some unforeseeable fluctuations in the macro
environment, such as increase of oil price etc.
# Muhammad Jafar Iqbal , a leading child novelists and Science Fiction writer lost his senses
when the VC of SUST unleased politically activated goons on the teachers of SUST.
# Parties in the manorial system was very much aware of their role. They also tried to outperform
each other specially the agents. Which can be compared to the competition between todays SBUs
(Strategic Business Units). Likewise there was also chances of manipulation at that time as well.
Tri Partile Relationship:
Shareholders

Management

Auditors.

# Informational Flow of Accountability that arises out of delegation comes from

(1)
(2)
(a)
(b)
(c)

Obligation to Fulfil,
Obligation to report on
Underperformance,
Non Performance,
Performance.

# Two essence of objectivity:

(1) Representational Faithfulness,
(2) Evidence.
# Manipulation leads to creative accounting.
# Accounting Bridges the gap between Past (Financial Accounting), Present (Cost
Accounting) and Future (Managerial Accounting).
# Auditors are disinterested both from shareholders point of view and the managements
point of view to satisfy their independence.
# Auditors need to sample not comprehensively seek evidence, and also understand the
underlying reason of manipulation.

Definitional Analysis of Auditing:

Most definitional analysis of audit are oriented to a particular situation, and are
heavily influenced by the authority providing such definitions. Such definitions
generally identify the particular objectives and responsibilities deemed appropriate at
the time. A number of definitions are highlighted to stress the validity and
acceptability of definitions as part and parcel for recognizing the true significance of
the discipline
(1) The foreword to the Professional Auditing Standards and Guidelines (1980) in
the UK states that, An audit is an independent examination of, and the expression
of an opinion on, the financial statements of an enterprise by an appointed auditor in
pursuance of that appointment and in compliance with any relevant statutory
obligation. (Status oriented definition)

(2) American Accounting Association (AAA) Committee on Basic Auditing Concepts

(1973) states that, Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to
ascertain the degree of correspondence between those assertions and established
criteria and communicating the results to interested users. (Practice/ Process
Oriented Defn)

(3) Robert Kuhn Mautz (1975) in his book with Hussein Amer Sharaf The
Philosophy of Auditing states that , The role of Audit in an Advanced economic
society can be and has been stated in very simple terms- to add credibility to financial
statements. (external Auditing based definition)
(4) David Flint (UK) (1988, Audit is a social phenomenon. It has no purpose or value
except in its practical usefulness. It is wholly utilitarian. The social concept of audit is
a special kind of examination by a person other than the parties involved which
compares performance with expectation and reports the results. It is part of the public
and private control mechanism of monitoring and securing accountability. The
societal concept of audit also includes its role in stabilizing human relationship.
Explanations:
1st Definition
Definition is a simplistic representation of an otherwise complex phenomenon.
Calling Card = Name card (Which can establish your justification, validity and
acceptability). Recognition of who you are, what you do and how there can be a best fit
between you and the organization. The 1st definition is like the name card of auditing, a status
oriented definition.
Definition contains all the basic information which are the traits and characteristics of a
phenomenon.
Elimination of overlapping of functions is a primary objective of HR.
Definition of a discipline has the same contribution to the society as the Degree has to your
organization.
Government was supposed to be, of the people, by the people, for the people. from
Famous Gettysburg Address by Abraham Lincoln. Definitions are not universal.
To philosophize a discipline, know the discipline first.
Know Thyself by Socrates a basic yet pronounced question. (Also present in 147
Delphic Maxims)
The element of utility of auditing is important as it is a demand driven discipline. A
Demand Driven Discipline is like selling an Idea in Strategic Management.
Utility of the society can be fulfilled to a particular level.
There is a relation of Reciprocity between the Audience and the Trainer/ Lecturer.
(Expectation is generally low from a lecturer).
There are two types of bad management (1) Ill Management and (2) No Management.
In our countrys case there is Ill management in some cases and no management in some
other cases. Like in the case of flood management there is no management. One hour rain and
the whole city is in a deadlock.

There must be an Institutional Framework for regulation.

Salient (visible) feature of any regulation is its institutional framework.
The essence of relevance of a discipline is implied in its utility.
2 Features of Definitions:
(a) Definition is a function of time, features and methods of a particular context /
situation.
(b) Influenced by institution or authority of the person relevant to the discipline.
(their preferred ideology affects it) .
Audit as a discipline was born in Scotland by Institute of Chartered Accountants of
Scotland (ICAS) in 1854.
ICAEW came in 1967.
AICPA came in 1930.
UK has a stable orientation on the primacy of the Auditing.
An Illustration on Examination VS Investigation :
Doctor when conducts basic procedures and techniques on the Patients body then prescribe
to Lab testing. Here the Lab testing are part of Investigation, the basic techniques were
Examination.

You cannot go straight into investigation without an examination. The examination is the
responsibility of Auditor , the investigation is of Managements.
You will be guilty of Professional negligence if you do not do Professional Due Care ,
like Primum Non Nocere (above all do not harm / First, do no harm) , the Hippocratic Oath
of Doctors.
Examination entails (1) Person (2) Situation and (3) Objective.
There are Dry Nurse and Wet Nurse. Wet Nurse are them who engages with Doctor in OT
on procedures on patients. Sometimes the doctors blames the Nurses for leaving gauges
within patients body, but even the wet nurse only fetches the apparatus and equipment. He/
She doesnt touch the patients body. It is the doctor who is sole responsible for leaving a wet
gauge in patients body.
GAAP or other standards are about compliance or technicalities not philosophical view.
Figures can be easily changed on behest of the management. SO ignore figures in a
societal context.
There was the word correct in lieu of fair before the Lord Justice Lopez statement
regarding the Kingston Cotton Mill,1896 It is the duty of an auditor to bring to bear on the
work he has to perform that skill, care and caution which a reasonably careful, cautious
auditor would use. What is reasonable skill, care and caution must depend on the particular

circumstances of each case. An auditor is not bound to be a detective, or, as was said to
approach his work with suspicion, or with a foregone conclusion that there is something
wrong. He is a watchdog not a bloodhound. He is justified in believing tried servants of the
company in whom confidence is placed by the company. He is entitled to assume that they are
honest and rely upon their representations, provided he takes reasonable care. It is
impossible to be correct not just in Audit but in any aspect.
Only death is certain, though there is no appointed hour for it. Element of doubt is
everywhere.
Therefore an Auditor is just a watchdog not a bloodhound. Watchdog barks seeing an
anomaly in the environment, the blood hound is the sniffer dog. Which can trace and track.

Bloodhound

Watchdog

Some standards are legal and logical.

Logical standards like prudence and conservatism (provide for all possible losses but
not for income).
But the primary responsibility of Auditing was misconstrued / misinterpreted. And it
happened due the public expectation of absolute assurance, or fraud detection. But it was
not auditors responsibility. Managers if fraudulent can cover their tract very well. And it is
management itself which detects fraud not auditor. Even in the case of Enron it was some of
the management personnel who detected the fraud, not its auditor Arthur Anderson & Co. The
fraud detection responsibility in Surbanes-Oxley was also on Mgt.
The sets of assumptions changed due to different conditions. If you are an auditor of a
company today , you cannot go into the minds of the Management that was say replaced 1012 months ago. You need to investigate to understand the condition the management and the
company was in at that time. Therefore on a fair basis not a manipulative one the opinion
will be expressed on the fairness of the decision taken by the management and if
manipulative whether the decision was deliberate or unwilling.
If there is any fraudulence found the Auditor will inform the management first, Auditor
should not bypass the management and tell on them to shareholders.

 Any anomaly will require an investigation.

Substantive test may or may not be true. Compliance of stipulation is needed.
Expression of an opinion, nothing more nothing less, should be reasonable under the
circumstances. (also look at the policies of the organization and performance audit).
Opinion can be challenged by the legal and professional body. Generally not reviewed
under most circumstances.
But modern auditing concept not limited to expressing an opinion only. Audit is more
moving into the social domain for the stakeholders. Due to the consequence of audit which is
part of the Cognitive Framework the stakeholders continue to demand / expect more from
the auditors. As the auditing is a service to the society. From the stakeholder based auditing
service auditing transcended to society, as the society borne the consequence. For example
during the share market scam of 1996 and 2010, the society as a well bore the consequence as
3.3 million people lost their savings. Same happened in 1930s great depression.
We dont blame the system we always blame the doctor!
The overarching concept of accountability is auditing. Mackenzie (1964) said without
audit there is no accountability. It is the preeminence of the discipline.
Achievement of performance is pervasive and is linked with the expectancy theory. (leads
to better performance and better control).
Authority not only imposes the responsibility but also enhances it. Senile and stupid Abul
Maals imposition of VAT on pvt education.
Socrates said knowledge is virtue.
Most knowledgeable person is the Prophet (PBUH). But he was illiterate so knowledge not
only depends on literacy.
Audit is also a practice oriented discipline along with DDD.
Before practice as a science and after practice as a profession.
Doctrine of Stewardship was first given by the British Parliament. Also the Limited
Liability Act in 1855 in UK. Management has become less accountable for these acts.
Law and Audit have a reciprocal relationship.
We cannot be all judgmental to auditors due to the societys expectation. Auditors must be
auditors.
We must emphasize upon the level of dignity , legality and acceptability.
We will cease to exist if we do not perform.
We have to either react (or be proactive), or preempt. In many cases we need to formulate
a preemptive control measure / mechanism to avoid anomaly.
A simple record of an asset in the Balance Sheet cannot be legally enforceable, believable
or even acceptable.

 We should be cautious about the revenue and asset mismatch. (why?)

The auditors should also be careful about the consequence of an accounting policy. Which
is a cognitive process / framework. Opinion rests on the eligibility of the auditor.
(professional eligibility).
Anything in the Financial Statements is auditors scope.
There is one group of Auditors who are appointed to find frauds they are called forensic
auditors. They are appointed by the court. Not by company.
Auditor as he is a professional always has obligation. This professional Obligation is : (1)
Legal, or (2) Moral or (3) Ethical.
CSR is a moral obligation rather than a legal compulsion. As the society has granted the
company many privileges the company has its duty towards the society as well. Likewise
every professional has his own privilege from the society thereby has responsibility towards
the society. Otherwise the negligence of responsibility has its consequence. Which is
tarnished image of the professionals.
Regarding the qualitative characteristics of the Accounting Information. The relevance
always comes first, then comes reliability. If the information itself is not relevant then trying
to understand its reliability is meaningless.
There are both external and internal compliance issues for an Auditor.
ILO convention for minimum wage , minimum safety.
Only the material non-compliance is considered.
To increase the credibility of the profession, there is a need of continuous professional
education.
Political, Economical etc. changes are dynamics of the society.
Auditors will have to be in the forefront of knowledgeability, due to the changes in
societys dynamics and legal frameworks. But it is also the law which gave Auditors an
escape route .

2nd Definition
Auditing is a logical, structured and structured process. Anything which is illogical is not
knowledgeable in Accounting and Auditing.
Auditing is fast reaching to the domain of ordinary people.
If you say that only business studies student can report financial statements, then society
will reject the idea and the profession as well. Therefore person who has minimum
understanding of relevance vs irrelevance, appropriation, provision may report a financial
statement. So that informed decision can be taken.
Professional due care varies from country to country and culture to culture.

 As a country we are less informed and less sophisticated.

Having an open system means having no hidden agenda.
In our countrys context the army is the most unproductive / unaudited / unaccountable
sector. In other countries which can develop technologies are not the same. $1b worth
armaments were purchased from Russia, maybe to use on the people of this country at most.
Army is the white elephant of our country.
The expenditures of Armed forces sometimes have elements of confidentiality. But the
element of confidentiality must be enforced when there is an issue of national interest or
national security being compromised, not for any other reason. What constitutes breach of
national interest or security is also not well defined.
In some countries Many so called towel heads namely Muslims, Sikhs are stripped to the
underwear for so called security checking. Even Sheikh Hasina or Dr. Muhammad Younus is
not exempt from that. Indias ex Prime Minister Monomohan Singh faced this as well along
with another female consul member of Indian embassy in USA.
2 Implication of Objectivity:
(1) In terms of purpose (for example how the transaction was carried out).
(2) Evidence (that has ways to legalize the transaction).
Objectivity cant be satisfied if the purpose is not established. The mode of operation
modus operandi must be clear to us.
What did Professor Robert (Rob) Gray said on Evidence. What is the implication of
evidence on organization?
Evidence is always emphasized. From the example of NASA taking away the climate
summary of Bangladesh since 1700 from East India Company can be cited. As NASA knows
that future Warfare will be based in Space and therefore the weather must be forecasted with
reasonable accuracy. But only relevant information is part of your knowledge , nothing else.
According to a survey conducted in Bangladesh 90% of the antibiotics has no effect on
patient. Because most of the Doctors prescribes pricey antibiotics for patients which they do
not need. Therefore, the patients natural immune system gradually fails. But still we have
blind faith on the doctors. In Bangladesh the doctors do not read the case history of the
patients which is necessary to prescribe any medication or treatment. Therefore before taking
any medicine we have to read the instruction manual for our own sake, because the doctor
may have prescribed wrong medicine.
Hippocratic oath has become Make as money as possible by doing any level of harm.
Alexander Fleming (inventor of Penicillin from Penicillium fungi) in 1928 said that my
fear is that one day the antibiotics will not work as people will use it unnecessarily.
There should be a Judicious Assessment of the situation without bias/prejudice.

Came from Judgment means that we need to know more than a layman. A
concept of prudence that the layman do not have. Involves logical analysis of the acceptability of a
managements conduct for the sake of stakeholders in general in society as well. Not yielding to pressure.

Financial Statements are Managements assertions. Which emanates from the authority.
Authority without validity also has no relevance. Validity is related with legal and functional
framework. (Functional is related to the standards)
Communicate and educate people on the reasonableness of auditors responsibility and the
outcome will be an Audit report that is publicly acceptable. (provided that the public has
interest in this regard).
There can be compromise of self-regulation of professionals if the professionals do not do
their professional jobs with due care. Though it is arguable that self regulatory status is
important for independence.
Auditors need to understand actions vs events. (??)
Actions have already took place in the past and the events are the consequence of those
actions.
Audit Practicability is an auditors responsibility. If any transaction made by bad
manager is observable it is non-tenable in terms of practicability.
Understand the implication of resources in future actions and performance.
Correspondence in term of compliance is necessary. For example in safety compliance etc.
But 100% compliance is not tenable in terms of finance or practicability). Auditors should
focus more on the qualitative (not quantitative) compliance of the policies.
Compliance has established criteria. Lack of compliance will risk the Going Concern
assumptions. We need to understand the degree of proximity between the compliance and
performance.
Society is a dynamic concept. So who are the interested parties is yet to be defined in a
general term.
Globalization and its output in accounting the Global Reporting Initiatives have the
standards to preempt the expectation of the society. Organization has to be socially
responsible entity. Disclosing information good or bad has a competitive advantage. The
potential information users need the disclosure of information in a preemptive manner.

3rd Definition
Credibility is a very important decision usefulness criteria like relevance, timeliness,
predictability etc.
Auditor doesnt change any information that is given by the managers, except in the
explicit consent of the management. Management can change information, the auditor can
merely show it out. Auditors helps in the improvement of internal control system due to the
continuous development of the profession itself.

There is also a number of limitations of auditors but it cannot restrict the independence of
the auditor.
Credibility is a managements concern, Vested interest creeping into shareholders and
management relationship.
Auditors role: Restrictive role when managements manipulative actions are concerned,
and facilitating roles when decision making by the shareholders.
Advanced society put new ..
The 4th definition talked about the social responsibility of an Auditor.
Three risk factors:
(1) Risk free rate,
(2) Business Risk,
(3) Information risk.
What is the role of a Bank Manager?
Answer: He gives money to borrowers which is not a simple job. The manager needs to use
professional judgment, prudence and judicious methods. The reason is that the money is not
his to give. A notion of accountability is there. Also it is not a full proof thing that the
repayment is guaranteed.
There is a connectivity between performance and expectation. Audited financial statements
fulfil the connectivity by fulfilling two needs performance and expectation.
Effective audit has the following traits:
(1) Credible Financial Information,
(2) Sound business Practices. (translated into information)
What constitutes effective is also situation dependent. Which involves the awareness of the
users as to what constitutes tenable financial information.
We do not understand the technical term/ nitty gritty (practical details) of disciplines other
than us , if we are told pulmonary embolism we cannot understand , but if we are told
sudden clotting or block of blood in the artery or lungs then we can make a picture out of it.
So effective audit should be communicated in clear terms.
We know that more risk = more return in general sense. If the manager is extremely
conservative/ risk averse he may lend money at the risk free rate. But economic prudence of
edging out the competitors may not let the managers lend at only the risk free rate as you
can achieve more by risky investments.
Business risk is inherent and there are three type of business risks:
(1) Inherent risk,
(2) Audit Risk,
(3) Detection risk.
This is also found in the framework of audit risk.
Business risk is regarding the cost of capital / interest.

 Robert Kuhn Mautz and Hussein Amer Sharaf (1961) has a paper on Philiosophy on
auditing where they also talked about adding credibility to the financial information by
restriction to financial information but also increasing the future predictability of the
information.
The lending credibility theory suggests that the primary objective of the Audit is to add
credibility to the Financial Statements. (Mautz & Sharaf) .
Auditing also improves managements decision in the case of whether to give loan or not.
Information risk is about credibility, financial statements have information risk.
Managements manipulation of information is not the same in different conditions. When
filing tax return the management will show reduced income and lots of exemptions and
allowance are exaggerated. But to shareholders they will try to inflate the income.
We need representational faithfulness to reduce information risk.

4th Definition
This definition talks about the demand and discipline and utilitarian typography of
auditing.
Audit is quickly moving to the social domain from a financial one. Audit should not
restrict itself in finance domain.
We cannot be content with a single bottom line we need triple bottom line i.e.,
(1) Planet (Environmental) (2) People (Social) , (3) Profit (Financial).
Profit maximizing is part of management ethos (philosophy), but not the only
responsibility.
We need to fulfill desirable social point of view in term of sustainability by having more
proactive (social) role to ensure long term viability of the organization.
Auditor has a social responsibility to find out the anti-social elements within the
organization. Auditor is the moral ethical controller of the management regarding the social
context.
In the definition the special kind of information is not well defined. As it has to be
changed through time. For example a safety compliance auditor needs special kind of
information and even the safety or compliance auditor was not present a few decades ago.
There are bureaucratic stagnancy in the system of our country. Professions dont have strict
institutional control, therefore external control may also be imposed. Thereby 100%
independence of the auditors is not guaranteed always. Government intervention is seldom
needed to protect public interest.
Public interest will always prevail, unless our awareness level is low, which it is as evident
from 1996 and 2010 stock market scam. Effective audit improves public mechanism and
public awareness. Perceived social impact would be cognizable to the society.

 C&AG the supreme audit institution (SAI) of our country improves sound business
practices. C&AG audits 23,000 entities in our country. Which also found out the 4,500 Crore
worth of waiver was given to Airtel by BTRC regarding its VOIP penalties. Which was a loss
of our country.
Before understanding how to stabilize the human relationship we need to understand the
socio, economic and political situations. The public sector auditors has bigger responsibility.
10,000 luxurious cars disappeared which were supposed to be used in many unknown
projects which may never had seen the light of day. The fallout is that the money was spent
already on these cars and as they were duty free the country lost the duty that it was supposed
to earn. (also due to bribe given to BRTA most of the cars are still running on the streets but
with different number plate, chassis license etc. )

Theoretical Framework of Auditing: Toward an Auditing Philosophy:

As a beginning, philosophy the word is a Greek term combining the word philein
which means to love and Sophia which means wisdom. In a more
academic/practical sense, philosophy is an attitude towards knowledge, not just an
awareness of knowledge. Philosophy has been both the seeking of wisdom and the
wisdom sought. Recently, the philosophical approach has been characterized as
consisting of for parts, namely, (1) Comprehension, (2) Perspective, (3) Insight, (4)
Vision.
(1) Comprehension: This implies the understanding of the whole rather than the
individual parts alone. Because he is concerned with understanding human life in the
broadest sense, the philosopher employs concept of great generally such as, matter,
mind, form, entity, process which are comprehension in that they apply to the whole
range of human experience. He also tries to discover relationship between seemingly
diverse aspects of the world, and through these connections to comprehend the world
as a meaningful whole if we apply this idea to auditing philosophy, we must look for
ideas relatively as general in this discipline. This may be taken as a cue to consider
such general concepts as evidence, due care, disclosure and independence. The study
of such broadly applicable concepts leads to the development of a comprehensive and
coherent body of knowledge based on an interpretation of auditing as a socially useful
discipline. This is much more realistic than the view that auditing is merely a set of
rules concerned with the best method(s) of completing a given engagement.
(2) Perspective: As a component of the philosophical approach, perspective calls for
the breadth of outlook necessary to grasp the true and full significance of things.
Thus, the philosophers would endeavor to consider any proposition in broad
perspective and not merely for the view of a special pleader- so that he can make
well grounded judgments about it. If one applies this idea to the development of
philosophy of auditing, one can see the need to brush aside pleas and transcend
private concerns and vested interests. Each issues must be considered in the light of
its aggregate importance and ramification rather than from one or more limited points
of views. Immediate consequence counts for very little if they conflict with more
significant and far reaching effects.

(3) Insight: The third element of the philosophical approach emphasizes the depth of the
proposed enquiry. The search for philosophic insight in another way of saying that the
philosopher seek to uncover the basic assumptions which underlie ones basic view of
life and the world. Basic assumptions are not only the foundations they tend to be
hidden and their importance is therefore unrecognized. No special subject can make
real progress until its basic assumptions are uncovered and examined. As auditing has
increased in importance, the work of the auditor has come to touch upon some of the
more important aspects of contemporary society. Yet its underlying assumptions have
not been brought forth for scrutiny and evaluation. So long as these remain implicit
only, arguments and discussion will continue with little hope of constructive
conclusions. Disclosures and acceptance of those postulates as the basis for theory
construction in auditing is essential if one is to avoid bias and eliminate unsound
7reasoning in this area of knowledge.
(4) Vision: The fourth part of the philosophical approach to auditing is vision. This term
is used in describing the philosophical approach,. Dos not mean unbridles
speculation or irrational mysticism. It means the philosopher has a view that lifts him
from purely, immediate and common concerns to the wider possibilities of the world
ideally and imaginatively conceived. In special philosophies, particularly those
concerned with current and future activities rather than with the history of thought
only, vision is an essential quality for the study of the problems relevant to the
subject. This quality, however, is not granted equally to all. Those really detached
from the exigencies of the daily problems and long devolved to the development of
their area of knowledge are most likely to be able to see and express, ahead of their
times, the consequences of alternative solutions to give issues. Other can cultivate it,
however as they thrive for and acquire a detached and yet serious concern for their
subject. This capacity to penetrate to the reality of a question or an issue and its
implication for the future is most essential in defining the prospects and establishing
the goals of a growing discipline like auditing.
Explanations:

(1) # Philein Sophia means lover of wisdom.

# Basically promoting the love of discipline. The first discipline has been existent for a
long time. Auditing is just a follow-on of previous disciplines out of human revolution.
# Academically / practically philosophy is related to attitude attitude is state of mind
that takes a long time to form, to germinate (grow) or to be nurtured.
# A particular discipline on a philosophical change takes a long time as well.
# Attitude is an integral part of your knowledge and philosophy.
# A man without knowledge cannot practice wisdom. But Knowledgeable doesnt mean
an academician, an illiterate person can be knowledgeable as well, like Prophet (PBUH).

# Every discipline promotes a brand of knowledge, not gathering a knowledge but an

overall approach to a particular discipline. You may have good knowledge but not have
the capability of a practician. Attitude toward knowledge is more than the process of
accumulation of knowledge.
# lack of interest may hamper the intellectual capability of a person. How you apply a
particular brand of knowledge depends on the attitude to practice the :
(a) Seeking of wisdom (comes second)
(b) What wisdom sought (comes first). These are the two pillars of philosophy.
# Some philosophers say I seek the truth, But what wisdom to seek is more important.
# Delivery of the wisdom is also important, also deficiency in identifying the wisdom
and the process of wisdom, will jeopardize the attitude and applicability of the wisdom
in the end.
# Steps necessary for philosophical endeavor starts with comprehension. Which is
synonymous with understandability. You have to become part of the process (of
philosophy) to understand it.
# We know as a generalized concept that a persons personality is originally formed at the
conception (from birth due to chromosome, DNA etc.)
# The shallowness of knowledge would not be enough to use it incisively and in a
comprehensive manner).
# Comprehension helps the philosophical priorities of wisdom.
# Socrates asked once that what is the purpose of life.
# Human life is the center of all discipline as it is practiced, formed out of of it.
# We are living in Bangladesh at an average age of 60+ some. (actually 69.7 for men and
70.7 for women). But in Japan has a life expectancy of 84. (India 66.4 , Pakistan only
65.6). Life expectancy is very important for socio-economic analysis, pension benefit
analysis, health structure, life insurance, social security benefits etc. The more you live
the more economic or social contribution you can do.
# The substance over form in auditing is the substance of information in a summarized
audit report, not the expanded audit report, that can come later.

# Matter set the preeminence of criteria in education that is relevance to reliability

perspective. We often say mind over matter, the purpose is to understand how the
matter is responding to mind.
# There are 3 types of relevance
(a) Operational , (2) Legal, (3) Functional.
# To understand relevance the collaboration and corroboration of information is
needed.
# Auditors exercise professional judgment, known in accounting as materiality of
profit, asset and revenue etc.

# What happens to mind as a result from matters is Materiality.

# Thinking is not a sudden process ( idea is), we follow the way of thinking for a long
time as a convention. Conventions on the other hand builds the attitude formation
process. (Conventions like prudence, conservatism etc.)
# Forms may change for attitude building from time to time, depending upon the
necessity. Therefore knowledge also changes, but not wisdom.
# Today we are talking about Micro Surgery, that is done by Minibots, not by man but
by miniature sized robots which are made for specific purpose that runs through blood and
veins. Therefore knowledge changed but wisdom that is Primum non nocere wisdom did
not change.
# History of the first Surgeon:
Surgery (the word came from French cheir meaning hand and ergon meaning work)
was first done by a Scottish Carpenter turned surgeon. (Carpenter and Butcher can become
surgeon). He realized the wisdom of surgery. He found a coachman having a bacteria caused
Gangrene and was sure to die. He lost his leg but lived for another 30-35 years because the
infection was gone. Now we can solve it with penicillin.
The father of Surgery is Abu al-Qasim al-Zahrawi (936-1013) a Spain born African
Muslim descent (Moor) known popularly to the west as Abulcasis, He wrote a famous book
named Al-Tasrif where he talked about hemophilia and several aspects of pregnancy gone

wrong. His works were translated into Latin and the French surgeons used it in 14 th
century in Europe for the first time. The early surgeries were carried out for kidney stones
based on Al-Tasrifs stone baby removal procedure.
# Wisdom is undefined and not restricted by knowledge. Pharmacy is a branch of
knowledge. Practical judgment of using a pharmaceutical product is dependent on wisdom.
Wisdom links knowledge from one part to another part. Alexander Fleming predicted that the
drugs will not affect as it did in 1928 because of indiscriminate use of drugs.
# Carpentry and surgery seems to be diversified aspects.
# 1890s development of Management Accounting by the American railroad Company.
# Socially desirable is one important criteria to form wisdom. Put the diversified aspects
together and wisdom is formed.
# Competence, true & fair view are also part of the concepts along with evidence, due care
etc.
# Control in reporting in the restricted forms of reports. Therefore accept and establish the
importance of understandability. In other words simplistically written and no ambiguity in
the Audit report is needed, otherwise it will hamper the independence of the discipline.
# Society should also need to learn to see the importance of practice of a discipline, and
should not be restricted to the rules of the practice.
# Justification of process and the process itself must be justified and it is true for both
Audit and Accounting.
(2) # Perspective is the second element. It means viewpoint. Viewpoint depends on the
benefit that a particular discipline can give to the society.
# If you go to the doctor and the doctor fails to suggest good prescription the patient
suffers and it changes the patients viewpoint forever.
# Danger of misrepresentation and misunderstanding comes from the true and full
significance or benefit of things.
# The deliverables or benefits are the true and full benefits of things.
# Benchmark of a society dictates the deliverables of the discipline.
# The Breadth is the total scope of output of a discipline that is virtually impossible
to structure the total scope of output.

# Organizations want to restrict the scope of expectation but society as a dynamic

concept does not want to restrict that. Socio-Political, economic every deliverables are
important to the society.
# Haliburton, once Dick Cheney (Former Bush era Vice President of USA) as a
director in the board, wanted to recapitulate on the oil resources in Iraq, made up fake
WMD story in Iraq. Which was out of the scope of corporate behavior but yet
happened.
# Business entities do not have the might to fight the war but make the government
do the fight for them, same as what east India company did in Indian subcontinent.
# Viewpoint will be shaped according to the situation of the society.
# Japans driverless car or Teslas Autopilot cars cannot work in Bangladesh as we
change lanes frequently and drive in the wrong lane.
# Financial Statements are not broad based, true view reporting is non existent when
manipulation takes place.
# We sometimes engage with an object for limited time and condition , such as we did
in our stock markets, we invest for a short period of time, to maximize on seemingly a
weak form of stock market. (we off-load to get more profit in short time)
# Also insider trading takes place in our stock market for manipulation. Therefore in
order to transparent and accountable:
(a) Bridge the gaps between fair trading/reporting and organizational practices/
policies.
(b) Follow ethics recommended for professionals.
# Financial Statement are actually managements assertions, an assertion through
analysis and decision, not a knee jerk reaction. Management cant go scot free
like auditors can.
# Ramification is the consequence and complication arising out of uncertainty of
actions. It is a very important part of perspective. The consequence is not bounded by
any time or group.
(3) # The third element is Insight. And it is a deeper concept. (needs experience to
understand)
# Philosophical auditing here is concerned about the effectees (beneficiaries) of the
audit.
# A congenial environment means that it facilitates decision making needs.

# CPD someday ago said that the business environment is not that conducive (which
is message about the skin tag of our country). The lack of welfare issue is a matter of
major concern.
# Become part of a welfare or retract from the issue. The consequences will be
different.
# Teachers are the nation builders, but the PM rejected the higher status of the
teachers for her lack of knowledge and insight. Her statement will always be wrong
and counterproductive. Because she has antagonized the nation builders. Teachers can
even guide the army and the bureaucrats but not the vice-versa is feasible.
# The depth of proposed enquiry is not final shaped/ formed enquiry. It has yet to
reach the end point, may never get the endpoint at all.
# You can identify/ observe the items, and choose to make an enquiry to management
not directly tell off to the shareholders.
# Insight connects philosophy of one discipline to another and 3 things are necessary
(i) assumption, (ii) conventions and (3) principles.
# Principles are enunciated, to bridge gap between social expectations and economic
performance.
# Uniformity of accounting practice is needed for enquiry.
# Determination of Philosophical way of life and world order is also needed.
# Validation, unification of what is happening in other countries and in Bangladesh is
good way to start for better acceptability (of a practice).
# We need to standardize not one organization but the entire industry. Standardization
starts with a proposition.
# Due to the non-linkage between the consequences and ramifications of share market
in 1999 it repeated in 2010 (under the same government).
# There are processes which are unravelling process, where not everything is clear
now. Somethings are added on as we push along, comes up with new experience and
problems.
# Sub judice latin word for Under Judgment is where investigation is being
carried out and you cannot give a statement on the outcome or about the perpetrators
of an incident. If you make a statement it hampers the investigation. Like, about the
two foreigners death the PM recklessly accused the opposition party.
# Share market also reacts to a particular companys share if the CEO etc is departing
from the firm etc. Therefore it is also an unravelling situation and uncertainty is
imprinted.
# Safety and performance related audits are Forensic Audit. Elements of
performance related audit (operational audit) has the 3Es Economy (input related),
Efficiency (Process related) and Effectiveness (Output Related). Which results in
informed decision making.

# We also have VFM (Value for Money) audit (VFM first described by Greek
Philosopher Cato). For 1 taka spend what is the magnitude of outcome or achievement
at all.
# The bottom line of public hospital is number of served people not profits.
# People (society), Planet (environment), profit shaped the mind of the auditors.
# We are not only guiding the planet but also guarding the planet.
# CSR is often inferred.
# Often our societal imperatives and perspectives differ.
# The Global Reporting Initiative (GRI) is not a legal imperatives but the country
specific form taken from it may have legal imperatives.
# We need to eliminate the unsound reasoning. We need to set postulates
(assumptions) to constraint a set of theory to ensure that our works are for good.
(4) # Vision is the fourth element. That stands for giving guide to the profession to a
desired level, we assume the existence of professional not only practice oriented but
also as philosopher professionals.
# Exigencies (pressures/demands) are occurrence of daily problems that are faced by
each person.
# Uncontrolled/ reckless speculation is not philosophical. The wider base is searching
for truth. Philosophers are truthful in seeking wisdom. (wisdom as we have seen goes
beyond the daily problems, linking knowledge of various disciplines)
# Auditing itself as a function has predesigned structure from audit planning, opinion
expressing to reporting. (7 activities in total).
# Objectives is a very important trail of information, that includes: (1) According to
the nature of the organization and (2) It is supported by evidence.
# Removing oneself from the interest, so that he/she is disinterested or
independent, or sometimes lack of disinterestedness/ independence, that results
into biasness.
# business removes one from the philosophical point of view , so he is biased and
short term interested.
# The society expects you to achieve a philosophical position, but for biasness you
cant.
# We have tendencies to Join the bandwagon, what others have done we feel
pressured to do the same. But success depends on addressing social priorities.
# Financial opulence (lavishness), political maneuverability, economic might etc
defines social priorities in our country.
# Audit must be a sustainable profession which depends on the changings of
mindset of the person as well. Tunnel Vision is not acceptable.

# Horse vision is restricted or monocular , it can see front as a binocular vision,

but
not on the sides. Disinterestedness sometimes focus on the tunnel vision, it restricts
your activity that doesnt allow you top veer off unnecessary activities. (It is
sometimes good).
# We need to have a broad vision not merely restricted to maintain the economic lot
of the society but for stability of human as well (came from Flints definition).
# You dont speculate with resources , as the resource is limited and also it is not
yours.
# The true essence of professionalism is the concernedness of rational outcome.
# Speculation has no business on philosophical orientation. Stock market is
speculative, it is also dynamic but society can operate without stock market as well.
But also a lot of evil events happened in stock market in our country.
# Speculation destabilize human relationship, and also the organizational and societal
interface.
# Economy is about sustainable developments not manipulation of development.
Mysticism tends to find the truth through meditation, prayer etc. (sometimes
philosophical if not irrational). As feedback of human imagination is sometimes
irrational mysticism. Irrational mysticism is sometimes hopeless.
# You must have imagination for normative theory to suggest a course of actions,
may not need it when you just describing and predicting and explaining for positive
theory purpose.
# Imagination is often good it leads to wisdom sometimes The carpentry turned
surgeon example.
# Professionalism involves convincing other people, not out of the mysticism but out
of the reality. It is a burden of the professionals. The society has the element of

skepticism, because of your wrongdoing the society has everything to loose, not you
perhaps.
# About common routine for which we cannot question, it requires only the
inquisitiveness of the human mind.
# Responsibility of the professional is to create acquired utility, of the profession, to
sell an idea.
# Ideally means rationally, which is not universal but the best under the
circumstances.
# Utopian (Thomas Moores) perfectness is never achieved.
# Our activities and contributions will be imperfect.
# Society has accepted by the reasonability of the professionals. The subject of Audit
itself has extremely wide application, which is part of the aspect reciprocity. Of
relations that dictates the applicability.
# Performed end game of the bargain. The last offer (In law) that is given which is
partly legal, and partly out of fiduciary relationship.
# Innovative : (1) In professional contribution and (2) In professional design.
# Present generations privilege has already been saturated and regressive , resulting
in imbalance between man and nature. But the concern of future generation is
important.
# Mars rover is not just a figment of human imagination, but it is logically forward.
# Resting on your achievement is not expected. Only the accolade (award) and
applaud is not enough , and we must continue to work for the future for innovation
and contribution and development.
# The society sometimes do not know what to need (thus participatory audit came).
Transparency and accountability are also philosophical. Court of law accepted the
preeminence of audit and accounting professionals and the contribution of their
professionalism is accepted.
# Forensic audit is related to the stabilization process.
# Playing the blame game is not desired at all (PM Hasina example).
# Exigency of daily game is like the playing the blame game. Not philosophical.
# Objective examination leads to investigation, Matter of Sub Judice should be
commented out.
# History of though is restrictive just says what has happened before.
# Also the ability, capacity and quality of professionals are not universal or equal.
# Training and exposure is needed.
# auditing / auditors competence is needed and it varies.
# Ahead of time , 1812 London Metro example.
# some issues and their consequences are not apparent. So keeping a contingency
reserve cushions against economic uncertainty. We may underprovide or over
provide (out of prudence).
# Detached is disinterestedness.

# Ethical audit is qualitative audit, it envisions to identify the optional that will turn
out to be mandatory in the future.

The Auditing Postulates:

Theories on communicative competence and action claim that every speech, act including
accounting reports inherently includes at least three validity claims : that the speech act is
true in the objective world (i.e., corresponds with external reality either through congruence
facts or through objective consensus), that the speech act is right in the intersubjective social
world (i.e., that it implies with societal norms and standards), and that the speech act is
truthful in the subjective world (i.e., that the actor is honest authentic and sincere) .
Conceptualizing about auditing is and has been inhibited by the narrow perception of the
scope of auditing by most of those who are knowledgeable about it in practice. There is
evidence of a wide spread difficulty in seeing that the present specific objectives are the
current manifestation of a deeper purpose: a preoccupation with accounting number oriented
auditing has obscured a realization that the social purpose of auditing may be served by the
use of their criteria : and a commitment to long established bases of reviewing the
performance of individuals and organizations has caused difficulty in adjusting to change in
social attitudes and expectations. To develop a theory that will stand up to the best of time
evolving society it is necessary to look very much deeper , and to take a more fundamental
and radical approach.
Explanation :
# Postulates are basically apparent truth (an assumption) widely perceived, used, practiced
and are conventional.
# Used as a basis for theory construction because it has by and large been accepted by the
society as an explanation of a discipline.
# Competence is a relative term and multidisciplinary. It depends on discipline or field of
knowledge. Competent in our society maybe incompetent in another.
# Rationality means logical : what we do has a purpose . Judge the logic of actions.
# Congruence means relevance and connections.
# Accounting and auditing both are restricted by subjectivity. But in practice they are to be
objective as well. We need to promote objectivity as far as reasonable within time and
resource limitation and perfect 100% is not possible. (Objectivity Subjectivity interface)
# Intersubjective world has two aspects :

(1) Very much subjective judgment process,

(2) Collaboration among various fields of knowledge.
# When standards are made it is important that social interests are protected before all. That is
why it is an inter-subjective because it needs dialogue with the society.
# Social expectations are very important. High profile corporate failure, in each and every
case, the auditors are implicitly or explicitly liable because they could not properly exercise
their professional competence. (Enron)
# Honest, Authentic and sincere : It is called subjective world because these three are largely
affected b backgrounds, education, experience and pasts.
# Economic development in our countrys perspective cannot be said to be in hand in hand
like in the US.
# Honesty is not necessary for a profession but for human need.
# Authenticity follows honesty. It has another dimension called training. Preparing report and
copying will lack authenticity. Authenticity is a matter of professional judgment depending
on target objectives. So, authenticity is objective driven.
# Sincerity: Sincerity is a combination of all. You may lack competence, but sincere. You
maybe dishonest but sincere.
# ICAS = Institute of Chartered Accountants of Scotland is the first professional body.
# People who are knowledgeable about their profession very much restricted from the very
beginning.
# KYC= Know your customer/client. Knowing the qualitative features mainly.
# Radical Approach: Auditor has to think out of their box. Other areas of significance, he has
to be radicalized with his profession. Because society is already radicalized but not the
profession.

Theory of Rational Expectation: (Theodore Limperg , 1926)

The theory of Rational Expectations states that the auditors report devices its added value
(confidence) from expert works, on which the audit opinion is to be founded. The auditor, in
performing his task, should be governed by the rational expectations of those who may use
his report. In other words, the auditor should act in such way that he does not disappoint these
expectations, while on the other hand, he should not arouse greater expectations in his report
than his examination justifies. As consequence, every consideration about the contents of the
auditors report is should be tested in the light of this requirement.
The seminal (Important) work of Limperg is characterized by several important elements.
The central area of Limpergs work is related to the social responsibility of the independent
auditor and the possible mechanism for ensuring that audits meet societys needs. Limpergs
work highlights the importance of social significance of auditing and the implication on how
an audit should be performed. Limperg emphasizes the role of the auditor in relation with the
users of the financial statements in the sense that the independent auditor acts as a

confidential agent for society. Limperg observed that the confidence inspired by the
independent auditor was the essence of the function, its very reason for existence. He pointed
out that if the function of the independent auditor is to achieve its objectives, then no more
confidence may be placed in its fulfilment than is justified by the work carried out and by
competence of the auditor.
Michael Power (1990) asserted that auditing would no longer be permitted to
develop on an adhoc basis if it were to fulfil its mission and satisfy public
expectations. Accordingly it was argued that a philosophy of auditing was needed
both to provide a direction for auditing practice in an advanced economy society and
to underwrite the claim to add credibility to the financial statements of the enterprise.
Explanations:
Limpergs contribution to contemporize accounting practice (a Netherlands Professor) was
the motto of the rational expectation.
# Limperg was much ahead of his time devised this idea in 1926 even before the great
depression. He was also foretelling events like the Great Depression. He was not restricted by
numbers. He understood the limited usefulness of the Financial Statements and also their
relevance.
# Corporate Governance , Behavioral issues are also not in this expectation if not relevant and
expected.
# Limperg tried to connect the (1) need of the society , (2) ability of the auditor and (3)
changes in society.
# Society also doesnt know always what it needs, and what is best for it.
# creative Accounting is everywhere now a days even after Sarbanes-Oxley Act , 2002.
Therefore there should always be skepticism.
# Creative accounting was part of the dynamic environment.
# Not only utilitarianism / validation of resources but also the rationalization of resources
uses to protect the future.
# Not a written but a trust based (fiduciary) relationship in Confidentiality of Agent is as
follows:
(1) Society has confidence,
(2) The rule 301 of Code of Professional Conduct and Bylaws by AICPA ( talks about
keeping confidentiality as a part of professional judgment, also the issue of
confidentiality also lies with the management), Auditor has socio-economic
objectives, and the cause-effect relationship be the driving force for the objective
fulfilment and decision making.
# Oil price down in all over the world not in Bangladesh, There is no god governance. No
Audit or accountability here.

# BBC incurred loss in the billions and carried its losses forward throughout years. But
through Government intervention and manipulation and through non-disclosure of how it
survived it is still surviving.
# Elements of Confidence & elements of expertise (also experience vs expertise).
# Context of operation decision policy and formulation is needed.
# If the head of the Institution is a known law breaker, then no accountability can be
expected. A chairman of a Bangladeshi bank opened the banks vault at 12 am just to get
his money to buy something luxurious. BB didnt say anything and Ibrahim Khaleds
report reported it. PM and FM also seems to be afraid of these people.
# Confidence is something that can never reach the Zenith but can be improved by times.
# Confidence is both restricted (not disclosure of everything, also situational) and
facilitated (by urgency to say).
# Audit should be able to abate the level of anxiety in the society, (Independence of audit
profession is derived from its self-regulation but it is also regulated from time to time as
interference by BB takes place).
# the paragraph said may as no conclusive research on who are the actual users of
accounting info. / financial statements have been established. ( As the no and community
of users / subscribers grows and so is the profession of audit).
# Some changes in audit profession such as (1) Forensic report (2) Ethical practice report
have taken place already.
# Society has demanded to broaden the base of the profession of audit.
# Law and Logic are the driving forces of Audit and Accounting also other disciplines
contributed such as management, Marketing, Finance, Economics, Psychology etc.
# Cut-off period is from a logical view (periodical reports),
# True and fair is logical and both legal not true ad correct)
# Rational expectation as opposed to greater unfulfilled expectations (illogical
expectations). Subject to experiencing a professional judgment.
# Good vs concerned professionalism ?
(1) Condition of the society,
(2) Process of accompanying changes,
(3) How the organization sees itself.
# Elements of Disappointment (informational) arises due to sophistication of users, Do not
use hearsay (rumor like Ponzi scheme or insider info trading).
# Audit report should be in conjunction with the scope of the audit discipline.
# Anything appears in the report may be legally expected.
# Expectation gaps arises out of (1) performance gap and (2) Decision usefulness gap (user
related expectation gap) .

# Audit is also known as the best possible defense.

# To remove criticism of the accounting info. Sometimes ad hoc based.
# Institutional influence on the development of Audit is needed.
# Vision of the audit profession is long term. Not very much structural as opposed to mission
of Audit which is short term.
# Mission and the public expectation (current) must go side by side.
# Public expectation could be a burden if unrealistic (no capacity to fulfil)
# Performance should be regulated and structured so that the correspondence of mission can
be established.
# Past performance is often the benchmark of future development.
# Ecological and environmental issues become part of the expectation. But it cant be
converted to financial terms.
# Philosophical underpinning is in depth, and the breadth of framework of a discipline.
# Discipline like audit/accounting is a time-tested system. Part of the total governance.
# Auditors are experts and a recommender body to the manager.
# Advanced economic society is concerned about the compiled economic citizenry of an
enterprise.
# Far reaching implication can also be illustrated by the high oil price in Bangladesh
whereas in the whole world it has become half.
# In advanced economic societies the citizen pays and they also receives benefits. They
ultimately pays and receives.
# In those countries medication are overpriced for high level of R&D expenditure for the
betterment of efficacy of the medication.
# Underwriting of credibility, the gap of credibility filled by the audit.
# Elements of audit is the Public perspective that the auditing is credible (also the assurance
perspective).

*** Postulates are not noted ( In the Khata only)