Chapter 1 :
Chapter 2 :
TYPES OF AUDIT
Chapter 3 :
INTERNAL CONTROL AND INTERNAL CHECK
Chapter 4 :
VOUCHING AND VERIFICATION
Chapter 5 :
AUDIT PLANNING AND DOCUMENTATION
Chapter 6 :
Chapter 7 :
Chapter 8 :
TYPES OF REPORT
Q1. Define an ‘Audit’ and state the various objects of an audit.
‘Two main objects of an audit are detection and prevention of errors and frauds.’ Comment. Can auditing prevent them?
Ans1. The word ‘Audit’ is derived from the Latin word ‘audire’ which means ‘to hear’. In olden times whenever the owners of a business suspected fraud, they appointed certain persons to check the accounts, who used to hear these accounts and express their opinion about their correctness or otherwise. Such persons were known as ‘auditors’. Thus, the term ‘auditor’ means literally ‘hearer’, i.e., one who hears and is used ever since the days when public accounts were accepted and approval on the basis of hearing the accounts read.
The original object of an audit was to see whether the accounting party has properly accounted for the receipts and payments of cash. If cash has been embezzled who did it and what was the amount. It was mainly an audit of cash book. The main object of modern audit is to fine out whether the balance sheet shows true and fair view of the state of affairs of a company and is drawn-up according to the Companies Act.
Spicer and Pegler have defined, ‘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 so as to give a true and fair view of the state of the affairs of the business and whether the profit and loss account gives a true and fair view of the profit or loss for the financial period. According to the best of his information and the explanations given to him and as shown by the books and if not in what respect he is not satisfied.
The Institute of Chartered Accountants of India describes audit as the independent examination of financial information of any entity, whether profit-oriented or not and irrespective of its size or legal form, when such examination is conducted with a view of expressing an opinion thereon.
To conclude audit may be defined as :
1. An intelligent and a critical 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 explanations received from the authorities so that, 4. the auditor may satisfy himself with the accounts :
(i) balance sheet shows a true and fair view of the concern,
(ii) profit and loss account shows true and fair view of profit or loss.
Objects of an audit – Discovery of errors and frauds and its prevention is not the main objective of audit.
Objectives of Audit
Main Objective Secondary Objective Expression of expert opinion Detection and prevention of errors and frauds
Main objective – Expression of expert opinion, the business prepares balance sheet to show its financial position. It also prepares profit and loss account for the financial period. These are given to the auditor for checking. He checks whether the facts shown in the balance sheet and profit and loss account are true and prepares a report called audit report and express his opinion.
Secondary objective : Detection and prevention of errors – Errors are normally innocent but sometime errors which might appear at first sign, as innocent are ultimately found to be due to fraudulent in manipulation, and therefore, auditor may pay special attention to every error. The following are various types...
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