Introduction to Auditing

by
Vipul Mehta
Audit
The word ‘audit’ is derived from the Latin
word ‘audire’, which means ‘to hear’
Whenever the owner of the business
suspected frauds or misappropriation of
funds, he appointed an official to check the
accounts. Such a person would meet the
concerned employees and hear whatever
they had to say in connection with the
accounts
An auditor has not only to see the
arithmetical accuracy of the books of
accounts but also has to go further and find
out whether the transactions entered in the
books of original entry are correct or not
WHY IS THERE A NEED FOR AN
AUDIT?
The reports published by a business entity
may contain
errors
not disclose frauds
be inadvertently misleading
be deliberately misleading
fail to disclose relevant information
fail to conform to regulations
The auditor should be an independent
person who is appointed to check the
organization, its records and financial
statements prepared from them and thus
form an opinion on the accuracy and
correctness of the financial statements
Role Of Auditors in Detecting Errors
and Frauds
The auditor sees his duty as:
“The independent examination of, and
expression of opinion on, the financial
statements of an enterprise by an
appointed auditor in pursuance of that
appointment and in compliance with any
relevant statutory obligation.”
 RELATION BETWEEN BOOK-
KEEPING, ACCOUNTANCY AND
AUDITING
Who can be an Auditor?
Only a Chartered Accountant can act as
an Auditor as per the Companies Act
2013
Except for Secretarial Audit where
Company Secretary acts as Auditor
Qualities of an Auditor
Areas Covered in Audit
1. Accounting and internal control
2. Arithmetical accuracy
3. Authenticity of transactions
4. Distinction between capital and revenue items
5. Verification of assets
6. Verification of liabilities
7. Comparison of the financial statements
8. Truth and fairness of financial statements
9. Statutory requirements
10. Appropriate reporting
Social Objectives of Audit
1. Protection of shareholders’ interest
2. Protection of national interest
3. Safeguarding capital erosion
4. Measurement of fair wages
5. Fair prices for consumers
6. Fair return for investors
Advantages of Auditing
From Various Points of View
Legal
Limitations of Auditing
1. Want of complete picture
2. Problems of dependence
3. Post-mortem examination
4. Existence of errors in the audited
accounts
5. Lack of expertise
6. Diversified situations
7. Quality of the auditor
8. Existence of defective policies
Questions
1. Define and explain the term ‘auditing’.
2. Discuss the objectives of auditing.
3. What are the differences between
auditing and accountancy?
4. Define and explain the terms ‘fraud’ and
‘error’.