INTRODUCTION TO

AUDITING

INTRODUCTION

WHAT IS AUDIT?
Necessity

of maintaining accounts
To check & verify the accounts
To check the authenticity of financial
statement
To state TRUE & FAIR VIEW

DEFINATION
By

SPICER & PEGLER

By

ICAI

In

General

HISTORY

HOW AUDIT CAME INTO

EXISTENCE?
Derived

from Latin word AUDIRE

Audire means TO HEAR
Ancestral Audit system
1ST started in England in 1314
by W. EXCHEQUER

AUDIT IN ACCOUNTING
To ascertain

the validity and reliability of

information
Audit is a vital part of accounting
An audit is an independent assessment
Performed by Auditor
To express an opinion on
person/organization/system

PURPOSE

OBJECTIVES

PRIMARY OBJECTIVES
To judge

the reliability of the financial

statements
To give opinion whether the accounts
disclose a true and fair view of the state of
company's affairs
Adequate and Appropriate
recording of books of accounts

SECONDARY OBJECTIVES
DETECTION

& PREVENTION OF ERRORS

A. Clerical errors:
i. Errors of Commission
ii. Errors of Omissions
iii. Compensating Errors
B. Errors of Principles:
DETECTION

& PREVENTION OF FRAUDS

SCOPE OF AUDIT

ADVANTAGES OF AUDIT
To Business
To Public
To State

ADVANTAGES TO
BUSINESS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Independent Opinion
Verification of Books
Satisfaction of Owner
Detection and Prevention of Errors
Detection and Prevention of Frauds
Moral Check
Protection of the Rights and Interests of Shareholders
Reliance by Outsiders
Loan Facility
Easy Valuation
Up to Date Record
Reliance by Partners / Shareholders

ADVANTAGES TO PUBLIC
1.
2.
3.

Safety from Exploitation

Facility for Prospective Investor
Satisfaction about Business Operations

ADVANTAGES TO STATE
1.
2.
3.
4.

Privatization of Industries
Easy Assessment of Tax
Quick Recovery of Taxes
Leading to Economic Progress

LIMITATIONS OF AUDITING
Exercise

of judgment
Material misstatements
Failing of internal control system

TYPES OF AUDIT
Legal

Time

base

of execution

Specific

Objectives

LEGAL BASE
Statutory

Audit

TIME OF EXECUTION
Continuous

Audit

Advantages
B. Disadvantages
Interim Audit
A. Advantages
B. Disadvantages
A.

SPECIFIC OBJECTIVE
Internal

Audit
Management Audit
Cost Audit
Social Audit
Due Diligence Audit
Environment Audit
Financial Audit
Proprietary Audit
System Audit

AUDITOR
Meaning
Definition
Work

TYPES OF AUDITOR
A.
B.
C.
D.

External auditor / statutory auditor

Internal auditors
Consultant auditors
Quality auditors

AUDIT IN COMPUTERIZED
ENVIRONMENT
Auditing

around the Computer

Auditing with the Computer
Auditing through the Computer
Computer use in Internal Auditing

CASE STUDY
THE LEEDS ESTATE BUILDING
AND INVESTMENT COMPANY
VS.
SHEPHERD (1887)

THANK YOU