Auditing is an independent, objective assurance & consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Auditing is globally recognized. It is counter check to accounting data so that any error, mistake or fraud can be easily detected through the technique of auditing. It is the primary source of advice on efficiency, effectiveness and overall economy of an establishment. Auditing starts its journey where accounting end.
In today’s society the exercise of an auditor’s to the economic and ethical leadership sets the bounding standard or in other words equips an auditor in such a way that recognizes him as a reliable body. With the growing conscious recognition of the importance of financial data in the ordering of everyday business and economic life, the need of basic economic facts is providing a constantly enlarging opportunity for the accounting profession. The auditors' reports have an especial capacity to fulfill the need for reliable and authoritative financial material not only because of the reputation or prestige of the certified statements, but also because of the significance generally attached by the business man to the functions of the auditor and his reports. These functions, and the scope of these reports, have in the past been definitely related to the character of and changes in business activity.
Audits and reviews are basically procedures performed on the financial statements of a company, for the purpose of determining whether the financial statements include any material misstatements. Misstatements are essentially wrong numbers due to numerical errors, fraud, or errors in interpreting the accounting rules. Misstatements are material if they are large enough to make a difference to a user of the financial statements, such as a bank or investor. And the person who involved in auditing is known as auditor. It also provides the techniques necessary to examine the internal control system of a company and perform operational or compliance audits by internal or external auditors.
The early conceptions of the functions of the auditor were such as to confine him to the duties of a mere checker and verifier of debits and credits. As business became more complex in its interrelationships there has been a compensating broadening demand for the acceptance of new and formerly unrecognized responsibilities by the auditor.
History of Auditing
Auditing existed primarily as a method to maintain governmental accountancy, and record-keeping was its mainstay. It wasn't until the advent of the Industrial Revolution, from 1750 to 1850, that auditing began its evolution into a field of fraud detection and financial accountability. Businesses expanded during this period, resulting in increased job positions between owners to customers. Management was hired to operate businesses in the owners' absences, and owners found an increasing need to monitor their financial activities, both for accuracy and for fraud prevention. In the early 20th century, the reporting practice of auditors, which involved submitting reports of their duties and findings, was standardized as the "Independent Auditor's Report." The increase in demand for auditors lead to the development of the testing process. Auditors developed a way to strategically select key cases as representative of the company's overall performance. This was an affordable alternative to examining every case in detail, and it required less time than the standard audit.
Many auditors in the likes of Mascarenhas & Turley, 1990; Abdel-Qader, 2002; Porter, et al., 2005 concurred with Flint (1988) that the aim of an audit has always been a dynamic rather than a static one. Brown (1962) asserts that the objective and techniques...