Skip to main content

Auditing-Meaning-Definition-Objectives

Introduction to Auditing

Meaning and Definition of Auditing

The word Audit is derived from Latin word “Audire” which means ‘to hear’. Auditing is the intelligent and critical test of accuracy, adequacy and dependability of accounting data and accounting statements. Different authors have defined auditing differently, some of the definition are:


“Auditing is an examination of accounting records undertaken with a view to establishment whether they correctly and completely reflect the transactions to which they purport to relate.”-L.R.Dicksee


“Auditing is concerned with the verification of accounting data determining the accuracy and reliability of accounting statements and reports.” - R.K. Mautz


“Auditing is the systematic examination of financial statements, records and related

operations to determine adherence to generally accepted accounting principles, management policies and stated requirement.” -R.E.Schlosser

Objectives of Auditing

The objectives of auditing are changing with the advancement of business techniques. Earlier it

was only to check the correctness of receipts and payments. The objectives of the auditing have been classified under two heads:

1) Main objective

2) Subsidiary objectives

Main Objective: The main objective of the auditing is to find reliability of financial position

and profit and loss statements. The objective is to ensure that the accounts reveal a true and fair view of the business and its transactions. The objective is to verify and establish that at a given date the balance sheet presents a true and fair view of the financial position of the business and the profit and loss account gives the true and fair view of profit or loss for the accounting period. It is to be established that accounting statements satisfy a certain degree of reliability. Thus the main objective of auditing is to form an independent judgement and opinion about the reliability of accounts and truth and fairness of financial state of affairs and working results.

Subsidiary objectives: The subsidiary objectives of the auditing are:

1. Detection and prevention of fraud: the one of the important subsidiary objective of

auditing is the detection and prevention of fraud. Fraud refers to intentional

misrepresentation of financial information. Fraud may involve:

  • a. Manipulation, falsification or alteration of records or documents

  • b. Misappropriation of assets.

  • c. Suppression of effect of transactions from records or documents.

  • d. Recording of transactions without substance.

  • e. Misapplication of accounting policies


2. Detection and prevention of errors: is another important objective of auditing. Auditing

ensures that there is no mis-statement in the financial statements. Errors can be detected

through checking and vouching thoroughly books of accounts, ledger accounts, vouchers

and other relevant information.
Labels:

Comments

Post a Comment

Popular posts from this blog

Basic Principles Governing an Audit

  SA- 200 describes the nine basic principles that govern the procedure of auditing. It lists out the roles and responsibilities of the auditor and his general code of conduct during an audit.  1] Integrity, Independence and Objectivity The auditor has to be honest while auditing, he cannot be favoring the organization. He must remain objective throughout the whole process, his integrity must not allow any malpractice.  Another important principle is independence. So the auditor cannot have any interest in the organization he is auditing, which allows him to be independent and impartial at all times. 2] Confidentiality The auditor has access to a lot of sensitive financial information of the organization. It is important that he respect the confidential nature of such information and documents. He cannot disclose any sensitive information to any third party unless it is a requirement by law. And he must also be very careful with documents, certificates etc. that the organ...
Post a Comment
Read more

Difference between Vouching , Verification and Valuation

  Difference between Vouching , Verification and Valuation  Vouching Verification Valuation Meaning Vouching is a process of comparing the entries in the books of accounts with the bonafide vouchers Verification is a process which proves the existence, ownership and title to the assets Valuation is a process which certifies the correct value of the assets and liabilities at the date of balance sheet. Subject Matter Vouching is made of the entries recorded in the books of original entry and their posting in the ledger Verification on the other hand is made of assets and liabilities appearing in the balance sheet at the end of the year Valuation is also made of assets and liabilities appearing in the balance sheet at the end of the year By whom Vouching is done by the senior auditor and audit clerks. Verification on the other hand is done by the auditor himself or his associates Verification on the other hand is done by the auditor himself or his associates When Vouching is done...
Post a Comment
Read more

Banking and its Functions

  Banking is an industry that handles cash credit and other financial transactions. Banks provide a safe place to store extra cash and credit. Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn profit. Sec. 5(b) of The Banking Companies Act of 1949 , defines a banking company as “accepting for the purpose of lending or investment of deposit money from the public, repayable on demand or otherwise and withdrawable by cheque, drafts, order or otherwise”. According to Walter Leaf , “ A bank is a person or corporation which holds itself out to receive from the public, deposits payable on demand by cheque.” Thus, banks are a business of accepting deposits and lending money. It is carried out by financial intermediaries, which performs the function of safeguarding deposits and providing loans to the public. Functions of Commercial Banks:   Modern commercial bank...
Post a Comment
Read more