Saturday, 28 December 2019

Unit 1: Introduction to Auditing


Unit 1: Introduction to Auditing

The word ’Audit’ is originated from the Latin word ‘audire’ which means ‘to hear’.

In the earlier days, whenever there is suspected fraud in a business organization, the owner of the business would appoint a person to check the accounts and hear the explanations given by the person responsible for keeping the account and funds.

Advanced Auditing Notes   Audit may be defined as an official inspection of an individual’s or organization’s accounts, typically by an independent body.

The role of accountancy is to record the transaction in the book of accounts, extraction of trial balance, preparation of trading and Profit and Loss Account and balance sheet etc.

On the other hand, auditing is the examination of books of account and checking the financial statement for the purpose of finding out the true and fair position and results of operation of a concern.

For a better understanding we could classify the objective of audit as: 1.

Primary Objectives; 2.

Secondary Objectives.

When accountings principles are violated in writing the books of account the error of principal occurs.

For example, when wrong account head is chosen to record a transaction, error of principal occurs.

When expenses of capital nature are debited to revenue or vice versa it is said that error of principal has occurred.

There are following types of audit: Statutory Audit; Non-statutory Audit; External Audit; Internal audit; Final Audit; Social audit; Performance Audit, etc.

Audit: Audit may be defined as ‘an official inspection of an individual’s or organization’s accounts, typically by an independent body’.

First Party Audit: An audit performed within an organization by that organization’s own auditing resource.

It is also referred to as an Internal Audit.

Internal Audit: This is a review of operation carried out sometimes continuously specially assigned staff with in the client business.

Non Statutory audit: This are the audit not specially required by law this scope of the audit will be outline by the contract between the auditor and the clients.

Social Audit: Social audit is performed to know the corporate social responsibility.

Statutory audit: This is the audit governed by statute such as the Companies Act.

Subsidiary objects: The subsidiary object of auditing is to detect and prevent errors and frauds in the books of accounts.

Third Party Audit: An audit of an organization performed by a body that is independent of the organization being audited, e.g.

Certification Body (Registrar) or Regulatory Body.

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