Professional Documents
Culture Documents
CHAPTER 1
Definition - Dicksee
Auditing
can
be
understood
as
an
examination of accounting
records undertaken with a
view
to
establishing
whether they correctly
and completely reflect the
AUDITING - DEFINITION
The word Audit means , to
listen/hear.
When the business firms want to know
the accuracy of their transactions and
the extent of truthfulness that is being
maintained by the staff in keeping the
records and books of accounts, they
used to conduct an audit of their
transactions to get the true and fair
view of the statements prepared and to
detect the frauds and errors committed.
AUDITING
AUDITING IS THE PROCESS
OF
COLLECTION
AND
EVALUATION OF EVIDENCE TO
REPORT
ON
ECONOMIC
INFORMATION.
AUDITING
ACCORDING TO ICAI,
Auditing is an examination
of the records of a financial
entity, whether small or big,
whether profit oriented or
not, when such examination
is conducted to express a
mere opinion thereon.
AUDITING
SAP 1 (Basic Principles Governing
an Audit)-(Standard Auditing
Practices)
An audit is the independent
examination
of
financial
information
of
any
entity,
whether profit oriented or not,
and irrespective of its size or
legal form, when such an
It
contains
features/points:
the
following
1. ECONOMIC INFORMATION
2. COLLECTION AND EVALUATION
OF EVIDENCE
3. REPORTING
SCOPE OF AN AUDIT
As per SAP (Standard Auditing Practices)2:
The scope of an audit of financial statements will be
determined by the auditor having regard to the
terms of the engagement, the requirement of
relevant legislation and the pronouncements of the
Institute.
However, the terms of engagement cannot, restrict
the scope of an audit in relation to matters which
are
prescribed
by
legislation
or
by
the
pronouncements of the Institute.
2. Determine
whether
the
relevant
information is properly disclosed in the
financial statements by
a. Comparing the financial statements with
the underlying accounting records and
other source data to see whether they
properly summarize the transactions and
events recorded therein and
b. Considering
the
judgments
that
management has made in preparing the
financial statementsselection &
application
of
accounting
policies,
classification of information etc
OBJECTIVES OF AUDITING
Main objective:
1. CONFIRMATION OF THE ACCURACY OF
ACCOUNTS AND STATEMENTS.(True and
Fair View)
Incidental and secondary:
1. DETECTION OF FRAUDS AND ERRORS
2. PREVENTION OF FRAUDS AND ERRORS.
3. SPECIFIC OPINIONS ON SPECIFIC FIRMS
OBJECTIVES.
ADVANTAGES OF
AUDITING
Ensures the correctness of accounts
Proper compliance of the law for
maintaining books and accounts
Detection of errors and frauds .
Helpful to inspire the confidence to
enter into business dealings.
It gives correct conclusions for the
management decisions.
LIMITATIONS OF
AUDITING
Working under the framework given
Communication and mental abilities
to evaluate the evidence
More pressure from internal and
external sources.
Knowledge of Standard Auditing
Practices (SAP) and updates of the
standards issued by Auditing and
Assurance Standard Board (AASB)
QUALITIES OF AN
AUDITOR
INTEGRITY
INDEPENDENCE (sign vs. resign)
COMMUNICATION ABILITIES
(MOST important confidentiality)
TECHNICAL COMPETENCE
LOGICAL ABILITIES
UPDATION OF KNOWLEDGE
BASIC PRINCIPLES
PRINCIPLE OF INDEPENDENCE
PRINCIPLE OF CONFIDENTIALITY
PRINCIPLE OF MATERIALITY.
BASIC PRINCIPLES
1.
2.
3.
4.
5.
6.
7.
8.
9.
Audit techniques
For collection and accumulation of audit
evidence, certain methods & means are
available and these are known as Audit
Techniques. Some of them (most common)
are: