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Origin of Audit Definition of Auditing Features or Characteristics of Auditing Scope of Auditing Objectives of Auditing Difference between Accounting and Auditing Advantages of Auditing
Origin Of Auditing
Latin word To hear Independent persons were appointed by proprietor to hear verbal explanation from those who maintained the books of account, called auditors as the business grew, owners found difficult to maintain complete knowledge of their business units Need to appoint an independent person having technical knowledge of accountancy
Definition of Auditing
An Audit is an examination of Accounting records undertaken with a view to establish whether they correctly and completely reflect the transaction to which they mean to relate
Audit Techniques
1.
Vouching
Examination of accounting entries passed in the book of accounts with proper evidences during the period under view.
2.
Verification
Comparison/test of entries with supporting documents of business to ensure accuracy, correctness and truth of financial information by means of physical existence of assets and liabilities.
3.
Valuation
Estimating value or worth of assets existing in business
Features or Characteristics
1.
2.
3. 4. 5.
6.
7. 8. 9. 10.
Independent examination Competent Qualified person Critical examination on the basis of proper evidence Determine fairness of accounting records Expressing independent opinion Enquiries are made to form an independent opinion. Relate Financial Information to test validity of data To report about the fairness and correctness of data to shareholders and owners. Review/analysis to express independent opinion. Verification of value and existence of assets & liabilities and confirm accuracy.
Scope
The extent of knowledge to which it deals with the organization
(i.e. audit procedures necessary to achieve the objectives of an audit.)
Objectives
A.
Objectives
B.
Objectives
C.
Special Objectives
i. ii.
iii.
iv. v. vi. vii.
Satisfaction of tax Authorities(settle tax matters) Loan facilities Purchase consideration(determine value) To attract investors Variation in profit(indicate cause of inflation) Moral check Management performance
Differences
Sr. no Points of differences Accounting Auditing
1
2 3 4 5 6 7
Scope
Nature Data Commencement Knowledge Qualification Status
Preparation to financial Examination and checking Statements and Interpretation of accounting records
Constructive in nature Concerned with current data Starts where book keeping ends Accounting knowledge No specific qualification Permanent employee of organization Analytical in nature Concerned with past data Starts where accounting ends Accounting as well as auditing knowledge Must be Chartered accountant Not an employee of organization
Duration
Differences
Sr. no 9 10 11 12 13 Points of differences Time Report Appointment Remuneration Information and explanation Advice Accounting One year Not require to prepare or submit report Appointed by management for long time Salary, low paid due to less qualification Cannot ask for Information and explanation from management Has a right to give advice to management on business matters Depreciation, amortization, valuation, interest rate, installment payment etc Auditing One month or less Required to prepare and submit report Appointed by BOD and shareholders for one year Audit fee, highly paid due to high professional skills Can ask for Information and explanation from accounting department Has no right to give advice to management on business matters Vouching, verification and valuation.
14
15
Techniques
Differences
Sr. no 16 Points of differences Necessity Accounting Necessity of every business Auditing Not a necessity of every business Boundaries are set by international standards and related law Errors and frauds are detected Starts with understanding clients business system and ends with independent opinion Do not accept any influence and pressure of management
17
Extend of work
Boundaries are set by management Errors and frauds are committed Starts with general entries and end with financial statement Direct influence and pressure of management
18 19
20
Influence
Advantages
To business concern B. To owners of the business C. To government D. To others
A.
ii.
iii. iv.
v.
vi. vii.
viii.
Moral check on employees Detection of errors and frauds Prevention errors and frauds Loan facilities Purchase consideration Easy to sell, to enjoy goodwill Settlement of disputes Settlement of insurance claims
B. Advantages to government
i. ii. iii. iv.
Easy assessment of income tax and sales tax without investigation Improving Economic conditions showing good sign for economy Privatization Purchase of private business units, if not working for welfare prosperity of general public
QUESTIONS
QUIZ
Quiz 1
1.
What have you understood by AUDIT? Briefly discuss scope of Audit. Write any 6 differences of accounting and auditing
2.
3.