Definition: Audit is the examination or inspection of various books of accounts by an auditor followed by physical

checking of inventory to make sure that all ...

Meaning of Auditing:

Auditing, therefore, is an examination of the books of accounts and vouchers of the business by an independent
person who should be qualified for the job, in order to ascertain their accuracy.

Branches of Accounting

COST ACCOUNTING
MANAGEMENT ACCOUNTING
Auditing

Tax Accounting

Fund Accounting

Government Accounting

Forensic Accounting

Fiduciary Accounting

FINANCIAL ACCOUNTING

The 5 Characteristics of an Auditor

1. Have the Required Experience
2. Ability to Make Independent Decisions
3. Auditors Have the Ability to Understand Different Business Needs
4. Dependable
5. Effective Communication Skills

Primary Objectives of Audit

The main objectives of the audit are known as primary objectives of the audit. They are as follows:

1. Examining the system of internal check.

2. Checking arithmetical accuracy of books of accounts, verifying posting, casting, balancing etc.
3. Verifying the authenticity and validity of transactions.
4. Checking the proper distinction between capital and revenue nature of transactions.
5. Confirming the existence and value of assets and liabilities.

Verifying whether all the statutory requirements are fulfilled or not. Proving true and fairness of operating results
presented by income statement and financial position presented by the balance sheet.
Subsidiary Objectives of Audit
These are such objectives which are set up to help in attaining primary objectives. They are as follows:
Detection and prevention of errors
Errors are those mistakes which are committed due to carelessness or negligence or lack of knowledge or without
having vested interest. Errors may be committed without or with any vested interest.
So, they are to be checked carefully. Errors are of’ various types. Some of them are:

 Errors of principle.
 Errors of omission.
 Errors of commission.
 Compensating errors.
 Detection and prevention of frauds
Frauds are those mistakes which are committed knowingly with some vested interest in the direction of top level
management.
Management commits frauds to deceive tax, to show the effectiveness of management, to get more commission, to
sell a share in the market or to maintain the market price of share etc. Detection of fraud is the main job of an auditor.
Such frauds are as follows:

 Misappropriation of cash.
 Misappropriation of goods.
 Manipulation of accounts or falsification of accounts without any misappropriation.

Under-or over-valuation of stock

Normally such frauds are committed by the top level executives of the business. So, the explanation is given to the
auditor also remains false.
So, an auditor should detect such frauds using skill, knowledge, and facts.
Other objectives

 To provide information to income tax authority.

 T6 satisfy the provisions of Companies Act.
 To have a moral effect.

Advantages of Audit

The annual auditing of financial statements is a statutory requirement in Malta; nevertheless it produces a series of notable
advantages:

 An audit helps to identify weaknesses in the accounting systems and enables us to provide suggestions for
improvements
 An audit assures directors, who are not involved in the accounting functions on a day-to-day basis, that the business is
running in accordance with the information they are receiving. An audit also helps reduce the risk of fraud and poor
accounting.
 An audit facilitates the provision of advice that can have real financial benefits for a business, including how the
business is running, what margins can be expected, and how these can be achieved. Advice can cover anything from
the tightening of internal controls, to tax planning or reducing the risk of fraud.
 An audit will enhance the credibility and reliability of the figures being submitted to prospective investors. If an owner
is planning on attracting investment or selling shares in the next three years, carrying out regular audits is highly
beneficial.

An audit adds credibility to published information for employees, customers, suppliers, investors and tax authorities:

 Credit ratings may be affected by not having an audit. Suppliers may not be prepared to give appropriate credit limits.
Banks and trade suppliers rely in part on credit rating agencies’ assessment of the company, and will look more
favourably on companies that have an audit.
 In the event of insurance claims, loss adjusters often have more faith in audited accounts.

An audit provides assurance to shareholders (if they are not directors closely involved in the business) that the figures in the
accounts show a true and fair view

There are a number of types of audits that can be conducted, including the following:

 Compliance audit. ...

 Construction audit. ...
 Financial audit. ...
 Information systems audit. ...
 Investigative audit. ...
 Operational audit. ...
 Tax audit.

Verification means 'Proving the truth' or 'Confirmation'. Verification is an auditing process in which auditor
satisfy himself with the actual existence of assets and liabilities appearing in the Statement of Financial
position.[1] Verification is usually conducted through examination of existence, ownership, title, possession,
proper valuation and presence of any charge of lien over assets.