Beruflich Dokumente
Kultur Dokumente
Presented By
V.Gopalakrishnan.,M.Com.,M.B.A.,M.Phil.,PGDMM.,
Assistant Professor,
Department of Commerce,
Kamaraj College, Tuticorin.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Meaning - Auditing
Meaning
The general meaning of an audit is a planned and documented
activity performed by qualified personnel to determine by
investigation, examination, or evaluation of objective evidence,
the adequacy and compliance with established procedures, or
applicable documents, and the effectiveness of implementation.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Definition
Simple Definition:-
Characteristics of
Auditing
1. Systematic & Scientific Procedure
2. Essential Documents are integral part
3. It is done with the help of vouchers, documents, information
and explanations received from the authorities.
4. Undertaken by an Independent person or Body
5. Analytical approach
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Cont.
6. Art & Science Both
7. Verification of the results
8. The Auditor has to satisfy himself with the authenticity
9. Compliance
10. The auditor has to inspect, compare, check, review,
scrutinize the vouchers supporting the transactions and
examine correspondence, Memorandum of Association and
Articles of association etc., in order to establish correctness
of the books of accounts.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Scope of Auditing
The scope of audit is increasing with the increase in the
complexities of the business. It is said that long range objectives of
an audit should be to serve as a guide to the management future
decisions.
Today most of the economic activities are largely conducted
through public finance. The auditor has to see whether these larger
funds are properly used. The scope of audit encompasses
verification of accounts with a intention of giving opinion on its
reliability. Hence it covers cost audit, management audit, social
audit etc. It should be remembered that an auditor just expressed his
opinion on the authenticity of the account. He has no power to take
action against anybody, in this regard its said that an auditor is a
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watch dog but not a blood hound.
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Cont.
1. Legal Requirements
2. Entity Aspects
3. Reliable Information
4. Proper Communication
5. Evaluation
6. Test
7. Comparison
8. Judgments
9. Work
10. Evidence
11. Misstatement
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Principles of Auditing
Fundamental principles of Auditing
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Misappropriation
Of Goods
Showing more
Profits
By Top
Management
Manipulation of
A/c
Showing less
profit
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Advantages of Auditing
A. Businessman's point of view:-
1 . Protects interest
2. Moral check
3. Builds reputation
4. Good security
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Cont.
C. Other Advantages
1. Audited account are detected as an authentic record of
transaction.
2. Errors and frauds are detected and rectified.
3. It increases the morale of the staff and thus it prevents frauds
and errors.
4. Because of his expertise the auditor may advise on various
matters to his clients.
5. An auditor acts as a trustee of his shareholders. Hence he
safeguards their financial interest.
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6. For taxation purpose auditing of account is a must.
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Cont.
7. In case of any claim is to be made from the insurance
company only audited account should be submitted.
8. Even in case of partnership firm auditing of accounts helps in
the settlement of claim at the time of retirement/death of a
partner.
9. Auditor account helps in managerial decisions.
10. They are useful to secure loan at the of amalgamation,
absorption, reconstruction etc.
11. Auditing safeguards the interest of owners, creditors,
investors, and workers.
12. It is useful to take certain financial decisions like issuing of
shares, payment of dividend etc.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Limitations of Auditing
Truly speaking, an audit should have no limitations of its
own. It is designed to protect the interest of all parties who are
interested in the affairs of the business. If there be any
shortcoming arising there from, it may be due to its narrow
scope of application in its related field of operation and
unextended definition of the concept.
Auditing suffers from the following shortcomings:
1. Want of complete picture
The audit may not give complete picture. If the accounts are
prepared with the intention to defraud others, auditor may not be
able to detect them.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Cont.
2. Problems of dependence:
Sometimes the auditor has to depend on explanations,
clarification and information from staff and the client. He may or
may not get correct or complete information.
3. Post-mortem examination:
Auditing is a post-mortem examination. There is no use of
such examination when events have already been occurred.
4. Existence of errors in the audited accounts:
It is not possible for the auditor in all cases, to check each
and every transaction of an organization. As a result, there may
be error in the audited accounts even after the checking by the
auditor.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Cont.
5. Lack of expertise:
Auditor has to seek opinion of experts on certain matters on
which he may not have experts knowledge. The auditor has to
depend upon such reports which may not always be correct.
6. Diversified situations:
Auditing is considered to be a mechanical work. Auditors
may not be in a position to frame audit programme, which can be
followed in all situations.
7. Quality of the auditor:
Success of audit depends on the sincerity with which the
auditor has performed his duties. The same audit work can be
done by two different auditors with difference in sincerity. 19
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Auditing
Meaning
Hierarchy
Accounting Precedes the Auditing
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Accounting
Auditing
Qualification
Expertise
Accountant is expected to be familiar
with audit techniques and procedures.
Nature of Employment
Accountant is permanent staff of an
enterprise.
He is an independent outsider. He is
working on an assignment basis.
Remuneration
Accountant receives salary as per
The terms of his service.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
FACTORS
INVESTIGATION
AUDITING
Description
Owners
Purpose
Process
Routine process
Scope
Period
Employees
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Audit Procedure
Audit
Programme
Test
checking
Routing
Checking
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Audit Note
Book
Working
Papers
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Audit Programme
An Audit programme is an outline of all procedures to
be followed in order to arrive at an opinion concerning a
clients financial statement.
An audit programme is a written scheme prepared by the
auditor to distribute the work to be followed during audit;
i.
ii.
iii.
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Fixed Audit
Programme Flexible Audit
Programme
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Extent of
Work to be
Done
Actual Work
Completed
A.Cash Book:
June
Full
July, November
1. Posting
2. Costing
3. Vouching
1 month
Full
3 months
B.Debtors
Legder:
1.Posting
2. Costing
3. Vouching
1 month
1 month
3 month
April
March
May, October
As on 31.3.20
As on 31.3.20
As on 31.3.20
As on 31.3.20
As on 31.3.20
As on 31.3.20
Physical
verification
1. Cash
2. Fixed assets
3. Stock
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Audit Procedures
Adoption of
Distinctive
Ticks
Routing
Checking
Test
Checking
Difference
in Balance
Books
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Example of Tick
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Routine Checking
Routing checking is the checking of Common records and
books or original entry and ledgers with a view of detect
clerical errors and frauds of a very simple nature.
Advantages:
Detection of errors and frauds
Checking of postings
Checking of final accounts
Arithmetical accuracy of entries
Simple Job
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Test Checking
Test Checking is also known selective verification
Sampling Process Test checking is a substitute for
detailed checking.
Advantages
Various Techniques of
Audit
Routine checking
Test Checking
Vouching
Valuation
Physical examination
Confirmation
Inquiry
Confirmation
Examination of subsidiary Books
Analysis of Financial Statements
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Internal Check
A System of Internal check is an arrangement of duties
where by no one person is allowed to carry through and
to record every aspect of a transaction.
Objectives
Internal Control
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Advantages Disadvantages
Internal Check
Advantages
No Seriousness
Carelessness
Expensive
Disorder
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Vouching
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Verification - Meaning
Verification means truth proving or confirming the Truth.
Verification signifies Proving the truth or
Confirmation.
Verification includes the following,
Existence
Valuation
Ownership
Possession
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Valuation - Meaning
Classification of Assets
Fixed Assets Plant & Machinery, Land, Buildings
Current Assets Stock in hand
Wasting Assets Coal, Mines
Intangible assets Goodwill, paten right, copyright
Fictitious Assets - Shares
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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Company Audit
Company audit is conducted is accordance with the
provisions of the Companies Act,1956.
To Conduct a Company audit, a company must appoint
qualified Auditor.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Qualification of Auditor
QUALITIES OF AN AUDITOR
Independence
Integrity
Objectivity
Ability for expression and communication
Tactfulness
Awareness
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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DUTIES OF AN AUDITOR
1) Compliance with Audit Standard
2) Duty to Report Fraud
3) Duty not to render certain services
He can not render "consulting and specialized services" which
means any one or combination of) Accounting and Book keeping services
) Internal Audit
) Design and implementation of any financial information system
) actuarial services
) investment advisory services
) investment banking services
) management services
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) any other kind of consultancy services
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
APPOINTMENT OF AN
AUDITOR
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DISQUALIFICATIONS OF AN AUDITOR
A body corporate
An officer or employee of the company under audit
A person who is a partner, or who is in the employment of
an officer or employee of the company
A person who is indebted to the company for an amount
exceeding Rs.1000
A person holding security of that company
A person who has been disqualified for appointment as an
auditor of a company on above mentioned grounds, shall
also not be eligible for appointment with any other body
corporate which may be that companys subsidiary or that
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companys holding company.
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Appointment by shareholders
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
APPOINTMENT BY
DIRECTORS
FIRST AUDITORS :
The board of directors shall appoint the first auditor(s) of
the company within One Month of the Date Of
Registration of the company.
CASUAL VACANCY:
The directors have been empowered to fill any casual
vacancy in the office of an auditor, except which is caused
by prior resignation of an auditor.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
APPOINTMENT BY SHAREHOLDERS
FIRST AUDITORS :
In case the directors fail to appoint the first auditor(s), the
shareholders shall do so at a general meeting by passing a resolution.
SUBSEQUENT AUDITORS:
(i) By Ordinary Resolution
(ii) By Special Resolution
The company shall within 7 days give intimation to the auditor so appointed.
The auditor shall inform in writing to the Registrar of Companies within 30
days of his appointment.
CASUAL VACANCY:
If a casual vacancy in the office of an auditor arises by his
resignation, such vacancy should only be filled by the company 54
in a
General
Meeting.
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
RE-APPOINTMENT OF AN AUDITOR
The retiring auditor shall NOT be re-appointed in the following cases:
1. Not qualified
2. Unwilling
3. Passing of a special
resolution
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Ceiling in case of
Partnership firm
Ceiling in case of
individuals
Objective of the
ceiling
Compliance
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
CONSTITUENTS OF REMUNERATION
1. Fees to the Auditor
2. Expenses
3. Cost of any facility
provided to the
auditor
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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REMOVAL OF
AUDITOR
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
APPOINTMENT OF AN AUDITOR IN
PLACE OF A RETIRING AUDITOR
Section 225
SPECIAL NOTICE OF THE RESOLUTION: For
appointing a person other than the retiring auditor, a special
notice of such a resolution should be given to the company
at least fourteen days before the meeting.
RIGHT OF RETIRING AUDITOR TO MAKE
REPRESENTATION: The retiring auditor has a right to
make representations in writing to the company, not
exceeding a reasonable length, and request for their
notification to the members.
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
Audit Report
A Report is a statement of collected and considered facts
so drawn up as to give clear and concise information to
persons who are not already in possession of the full
facts.
Kinds of Audit Report
Final Report
Interium Report
Partial Report
V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM
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V.Gopalakrishnan.,M.Com.,MBA.,M.Phil.,PGDMM