Audit emerges because society needed. Auditing has been a regular feature of organized human activity from the earliest times. Indeed evidence suggests that formal audit procedures existed in the economic activities of the most of the early civilization. With the advancement of development, audit emerges as a separate discipline & contributes to the economic & social advancement. Audits serve a vital economic purpose and play an important role in serving the public interest to strengthen accountability and reinforce trust and confidence in financial reporting. As such, audits help enhance economic prosperity, expanding the variety, number and value of transactions that people are prepared to enter into. However, in recent years, and in the light of corporate scandals, we have witnessed ongoing global demands for improvements in audit quality. Changes have been taken place to promote greater transparency in the audit and accountability in auditors but there are continuing demands for further improvements to be made.
Definition of audit:
Audit is an independent examination of books of accounts, other documents, stores, assets etc relating to receipts and expenditure of an entity with a view to ensure ▪ that rules and orders framed by competent authority in regard to financial matters have been followed; ▪ that expenditure has been incurred with due regularity and propriety; ▪ that assets have been properly utilized and safeguarded; ▪ that resources have been used economically, efficiently and effectively; and ▪ that the accounts truly represent the fact.
“Auditing refers to 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.” -American Accounting Association (AAA)
Role of audit to the economic perspective:
One of the things we have learned so far is that the realization of human rights, especially economic and social rights, requires resources as well as laws. The availability and use of resources is strongly influenced by the type of economic policies that entities implement. Modern audit is concerned with citizen’s economic and social benefits. In the jargon of economics, government actions typically ‘distort’ the operation of economies, compared with the benchmark of a competitive market economy, and assumed to be able to operate without any government intervention. Such actions can only be justified by auditor if there are benefits stemming from the action that outweigh its costs. Here is an example of such logic applied to education: To finance better-quality schooling for those who have the least educated parents, and who attend the worse schools, it may be necessary to raise taxes on other people. The basic economic insight that such taxation distorts incentives remains valid. Such policies should be implemented only to the extent that the (present) value of the long-run benefits of greater equity exceed the efficiency costs of funding them. [World Bank, World Development Report 2006 (Washington DC: World Bank, 2006) at page 22.] Benefits and costs are typically measured using a money-metric. Education is typically valued in terms of additions to a person’s expected future lifetime earnings, placing a low value on education of people whose expected future lifetime earnings are low, and no value on people for whom such earnings are zero. The same tension can be found if we look at the economy as a whole. Neoclassical economics judges the benefits of economic policies in terms of maximizing the output of goods and services, as measured by the level and rate of growth of the country’s Gross Domestic Product (GDP). It is assumed that rapid economic growth will lift people out of poverty, and that private ownership and market competition are...