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Introduction To Audit and Audit Process

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21 views

Introduction To Audit and Audit Process

Uploaded by

tanya chauhan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCF

B.Com, 6th Semester


Introduction to Audit and Audit Process
Dr. Aakanksha Singhal

1
Meaning of Auditing
• The origin of auditing may be traced back to the 18th
century when the practice of large-scale production was
developed as a result of the Industrial Revolution.
• It is found that some systems of checks and counter-
checks were applied to maintain public accounts, rather
accounts of public institutions, as early as the days of the
ancient accounts of public institutions, as early as the
days of the ancient Egyptians, the Greeks, and the
Romans.
• ThehistoryofauditinginIndiadatesbacktoApril1,1914when
theIndianCompaniesAct,1913cameintoforce.
• The act for the first time prescribed the qualifications for
an auditor.
Definition of Auditing
As per Spicer and Pegler: “An audit may be said to
be such an examination of the books, accounts
and vouchers of a business as will enable the
auditor to satisfy that the Balance Sheet is properly
drawn up, to give a true and fair view of the profit
or loss for the financial period according to the best
of his information and the explanation given to him
and as shown by the books, and if not, in what
respect she is not satisfied.” not, in what respect
she is not satisfied.”
Definition of Auditing
Statement on Standard Auditing Practices
(SAP) 1 by ICAI “Auditing is the independent
examination of financial information of any
entity, whether profit oriented or not, and
irrespective of its size or legal form when
such an examination is conducted to
express an opinion there on.”
Therefore, an audit may be defined as:
1. Systematic and Scientific examination of the
books of accounts of a business, which
2. Is done by an independent person or body of
persons qualified for the job,
3. With the help of vouchers, documents,
information and explanation received from the
authorities, so that
Advantages of accounting
The auditor may satisfy himself with the authenticity of
financial accounts The auditor may satisfy himself with the
authenticity of financial accounts prepared for a fixed term
and ultimately report that
1. Balance Sheet exhibits the true and fair view of the state
of affairs.
2. Profit and Loss accounts reveal the true and fair view of
the profit or loss for the financial period; and
3. The accounts have been prepared in conformity with the
law.
Difference
Duties of Auditor
1. To check the arithmetical accuracy of the accounts.
2. To check the books of accounts with the help of all the
relevant vouchers, invoices, correspondence, minute
books, etc.
3. To verify Profit and loss a/c and assets and liabilities in
the balance sheet show the true and fair view.
4. To report to the client based on his findings.
5. To report to the client based on his findings.
Characteristics of Auditing
1. It is the systematic and scientific examination of the
accounts of a business.
2. It is an intelligent and critical examination of the
accounts of a business.
3. It is done by an independent person or body of persons
qualified for the job.
4. It is a verification of results shown by the Profit and
Loss Account and the state of affairs shown by the
Balance Sheet.
5. It is a critical review of the system of accounting and
internal control.
6. It is done with the help of vouchers, documents,
information, and explanations received from the
Objective of Auditing
Primary Objective
1. The primary objective of the audit is to find out
whether the accounts of a particular concern
exhibit a true and fair view of the earnings and
financial state of affairs.
2. The primary objective of an audit is to see
whether the accounts are complete, correct, and in
conformity with the law. Accounts are complete,
correct, and inconformity with the law.
Objective of Auditing
The Secondary objectives of audit are:

1. Detection or errors and fraud, and


2. Prevention of the recurrence of those
errors and of fraud.
Secondary Objectives of Audit
• Detection of Errors The errors may occur because of the
carelessness of the staff or their ignorance of the
principles of accounts. These errors may be of the
following types:
(a) Clerical or Technical Errors
• Error of omission(when any transaction is omitted wholly
or partly)
• Error of Duplication (when same transaction has been
recorded
• Error of Duplication (when same transaction has been
recorded twice)
• Error of Commission (because of incorrect records in
books of accounts)
• Compensating error(when error counter act each other.
Secondary Objectives of Audit
(b)Error of Principle
These arise when transactions are not
recorded in books according to fundamental
and accepted principles of accountancy
Secondary Objectives of Audit
• Detection of Fraud
Frauds connected with the accounts may take place either
(1)by the misappropriation of cash and goods, or (2) by the
falsification of accounts without any misappropriation
Misappropriation of cash may take place in two ways:
 By omission of receipts and acknowledging a lesser
amount than By omission of receipts and acknowledging
a lesser amount than received.
 By inclusion of fictitious payments or recording more
payments than made
 Misappropriation of goods is greater in the case of goods
that are less bulky but more valuable.
 Falsification of accounts is undertaken to conceal the
true position of the concern. 1
Secondary Objectives of Audit
• Prevention of errors and frauds
 Prevention of errors and frauds is possible only by the
application of a sound system of internal checks and
efficient management of the concern.
 Such moral check is imposed on the employees of the
client automatically since they would be alert and would
not carry automatically since they would be alert and
would not carry on any dishonest on any dishonest
transactions.
 He should make a detailed study, analysis, and
evaluation of the internal control system of the enterprise
and find out its weakness.
Secondary Objectives of Audit
• Detection of Fraud
Frauds connected with the accounts may take place either
(1)by the misappropriation of cash and goods, or (2) by the
falsification of accounts without any misappropriation
Misappropriation of cash may take place in two ways:
 By omission of receipts and acknowledging a lesser
amount than By omission of receipts and acknowledging
a lesser amount than received.
 By inclusion of fictitious payments or recording more
payments than made
 Misappropriation of goods is greater in the case of goods
that are less bulky but more valuable.
 Falsification of accounts is undertaken to conceal the
true position of the concern. 1
Benefits of Auditing
1. Reliable Information
Auditing ensures that financial information is
accurate, reliable, and unbiased, providing a
clear picture of an organization's financial
health.
2. Risk Mitigation
Identifies and addresses risks,
helping organizations prevent fraud,
errors, and compliance violations.
Benefits of Auditing
3. Stakeholder Confidence
Audited financial statements enhance
stakeholders' confidence in the
organization's financial reporting and
decision-making.
The auditing process
1. Planning
Identify objectives, assess risks, and develop an
audit plan.
2. Fieldwork
Collect and analyze data, test controls, and review
transactions.
3. Reporting
Prepare and issue an audit report, including
findings, recommendations, and management
responses.
Challenges of auditing
Data Complexity
In today's digital world, auditors face the challenge
of dealing with vast amounts of complex and
diverse data.
Cybersecurity Risks
Auditors must stay vigilant against cyber threats
that could compromise sensitive financial data.
Interpersonal Dynamics
Auditors often navigate complex relationships with
clients and stakeholders, requiring effective
communication and diplomacy.
Classification of Audits
1. Statutory and Non-statutory Audits
2. Internal and External Audits
3. Interim, Final and Continuous Audit
Kinds of Audit
1. Cost Audit
2. Tax Audit
3. Management Audit
4. Social Audit
5. Balance Sheet Audit
6. Systems based Audit
Conclusion
Auditing plays a crucial role in
promoting transparency, ensuring
financial integrity, and increasing
stakeholders' confidence. By
addressing challenges and maintaining
high standards, auditors contribute to
the success of organizations worldwide.

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