Such an examination is carried out by a competent and unbiased person with the help of evidences, documents, information and explanations given to him. For example, if a person goes to a doctor to have himself examined, the doctor, only after a thorough examination of his body, gives his report as to whether he is healthy or not, and if not, what is the ailment he is suffering from. In the same manner, a businessman gets his books of accounts examined by a doctor of books of accounts i. In ancient Greece and Rome, accountants used to be appointed in order to maintain the records of the government treasuries.
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Archana Prabhakar. Luthfur Rahman. No Downloads. Views Total views. Actions Shares. Embeds 0 No embeds. No notes for slide. Auditing notes 1. In olden days the methods of maintenance of account was not properly because size of the business is very small with small amount of capital for that purpose the number of transaction to be recorded by each individual himself. This will be lead to compulsory maintaining of account of a business concern then the need of auditing will be aroused in 18th century.
Meaning of Auditing: An examination and verification of a company's financial and accounting records and supporting documents by a professional, such as a certified chartered Accountant. Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances financial or otherwise of an enterprise for a stated purpose. It acts as a safeguard on behalf of the proprietor whether an individual or group of persons against extravagance, carelessness or fraud on the part of the proprietor's agents or servants in the realization and utilisation of the money or other assets and it ensures on the proprietor's behalf that the accounts maintained truly represent facts and that the expenditure has been incurred with due regularity and propriety.
The agency employed for this purpose is called an auditor. Feature or aspects or Important of auditing 1. Audit is a systematic and scientific examination of the books of accounts of a business; 2. Audit is undertaken by an independent person or body of persons who are duly qualified for the job. I can is times more important than IQ It is better learn late than never. Audit is a verification of the results shown by the profit and loss account and the state of affairs as shown by the balance sheet.
Audit is a critical review of the system of accounting and internal control. Audit is done with the help of vouchers, documents, information and explanations received from the authorities. The auditor has to satisfy himself with the authenticity of the financial statements and report that they exhibit a true and fair view of the state of affairs of the concern.
The auditor has to inspect, compare, check, review, scrutinize the vouchers supporting the transactions and examine correspondence, minute books of share holders, directors, Memorandum of Association and Articles of association etc. Audit of a accounts in business made thought the year or periodically 9.
Auditing always provides true and fair report of financial statement. The scope of audit is not only limited to the business concern but also extended non business concerns such as educational institutions. Health department , charitable trust etc. Verification of Books and Statement:- The main object of audit is the verification of the books and the financial statements of the company concerned. Discover and Prevention of Error:- While examining the books, auditors detect some errors. These are various kinds of errors.
So audit is very useful in preventing and detecting the errors. Discovery and Prevention of Fraud:- Fraud means false representation made intentionally with a view to defraud somebody.
It is the duty of the auditor that he should detect the fraud. So audit main object and advantage is that fraud may be detected and prevented. Auditor may also suggest various methods of internal check which will prevent fraud. Moral Check:- When each staff of the company knows that this financial transactions will be examined by the auditor then he fears to do that fraud.
The fear of their detection acts as a moral check on the staff of the company. Independent Opinion:- Auditing is very useful to obtain the independent opinion of the auditor about the business condition. If the accounts are audited by the independent auditor, the report, of the auditor will be a true picture and it will be very important for the management. Keeping in view the report, owner of the business will be able to prevent frauds and errors in future.
Through audit shareholders are assured that the accounts of the company are maintained properly and their interest will not suffer. Check on Directors:- Audit acts a check upon the directors and precaution against fraud on the part of the management. Proper Supervision:- Sometimes owner of the business can not look after the business personally. Audit acts as a check on employees and it saves the owner from losses. Valuable Advice:- The auditor has expert knowledge about the accounts and finance problems, so he may be consulted about these problems.
Disputes Settlement:- In case of partnership, audit is very useful in settling the disputes among the partners. If any partner dies, or retires, the audited balance sheet will be very useful in estimating the value of goodwill. Loan Facility:- If accounts are audited, then true picture will be known to the financial institutions and they will never hesitate to lend the money.
Insurance Claim:- In case of fire insurance and participation of fraud claims can be settled on the basis of audited accounts of the previous years. Property Value Assessment:- If the accounts have been audited, then it is easier to value property when the business is sold. In the eyes of law audited accounts are considered more reliable. Correct Information about Business:- Due to the fear of audit work accounting always remains upto date and correct information is given to the members in time.
Advantage for General Public:- Audited financial statements present the real position of the company before the general public. Keeping in view the position of a company one can do the investment. Useful For Tax Department:- Assessment of tax becomes very easy job for the tax department. Keeping in view the audited accounts they impose the taxes. Disadvantages of auditing: It is true that auditing as many advantages, but it as some limitations as such 1.
Dependence on explanation by others:- Auditor has to depend on the explanation and information given by the responsible officers of the company. Audit report is affected adversely if the explanation and information prove to be false. Dependence on opinions of others: - Auditor has to rely on the views or opinions given by different experts viz Lawyers, Solicitors, Engineers, Architects etc. Conflict with others: - Auditor may have differences of opinion with the accountants, management, engineers etc.
In such a case personal judgment plays an important role. It differs from person to person. Effect of inflation: - Financial statements may not disclose true picture even after audit due to inflationary trends. Corrupt practices to influence the auditors: - The management may use corrupt practices to influence the auditors and get a favorable report about the state of affairs of the organization.
No assurance: - Auditor cannot give any assurance about future profitability and prospects of the company. Inherent limitations of the financial statements: - Financial statements do not reflect current values of the assets and liabilities. Many items are based on personal judgement of the owners.
Certain non-monetary facts can not be measured. Audited statements due to these limitations can not exhibit true position.
Auditing notes – Complete Chapter Wise Notes of Auditing