Auditing is a systematic examination of the

books and records of a business or other

organization in order to ascertain or verify and to
report upon the facts regarding its financial
operation and the result thereof.
R.B. Bose has defined as Audit may be said to
be verification of the accuracy and correctness
of the books of accounts by independent person
qualified for the job and not in any way
connected with the preparation of such
accounts.
The word audit is derived from the Latin Word
auditure which means to hear . Formerly a
person responsible for maintenance of accounts

The role of the internal auditor normally

involves checking, verifying and reporting on:
1.Financial information required by the
management.
2. Costing information required by the
management for example budget, variance,
cash forecasting, etc.
3.Effectiveness of internal control system,
preventing loss of assets or manipulation of
accounting data.
4.Efficiency of companies management
particularly in the way in which it formulates its
plans, policies and decisions.

A person or a group of persons deputed

to audit the accounts is/are called
internal Auditor/s. These persons may be
an internal part of the organization
(employees) or can be hired from outside
agency to audit the accounts. Internal
auditing of accounts is not compulsory.
The internal Auditor may not be
registered Chartered Accountant(C.A.).

An auditing is not only useful to the

management but it also ensure socioeconomic benefits.
The following are the advantages of auditing :
Benefits to the Management:

1. It detects the errors and frauds.

2. It keeps employees more alert.
3. It reduces the wear and tear of assets and
also helps in better utilization of assets.
4. It increases profitability.
5. It reduces the cost due to better management,
efficiency and control.
6. It points out managements weakness and

Benefits To The Share Holders and General

Public:
1.This tells the public whether is making
sufficient profits or not.
2. In its reports, it gives the information like
earning per share, cash earning per share
,debt equity ratio, price equity ratio,
comparative balance sheets, comparative
income expenditure statements, etc. This
helps public and share holders in deciding
whether to invest n the company or not.
3.The public gets goods and services at
reasonable prices.

Benefits To The Governments:

1. The bills at cost plus profit submitted to the
government are settled without dispute.
2. The government can fix prices of essential
commodities.
3. The subsidies can be decided after studying
the cost and selling price government wants to
fix.
4. It helps in fixing the export price for
commodities.
5. The income tax and other tax authorities
accept the reports submitted by the auditors.

Through auditing has many advantages but the

effectiveness of this department depends on the
following limitations:
1.Qualification: The auditors must be well qualified
and they must know their job perfectly.
2.Experience: The prior experience of auditing is very
essential to audit the accounts accurately.
3.Independence: The auditor must be extended
independence. That is why usually they are hired from
outside. Even if internal auditor/employee are to be
used then he must not work under accounts
department. In fact he should report to General
Manager or Director of the company.
4.Access To Records: The auditors must have an
authority to have any or all the documents, files, etc.
for the purpose of auditing.
5.Safety: The auditor must not feel unsafe or

External Audit/Statutory Audit/Compulsory Audit:

It is a compulsory audit done by outside agency at least once, at
least once, at the end of the financial year. As per SEBI guidelines
public limited companies are required to have the companies
accounts after every three months. Only registered Chartered
Accountant Auditors are authorized to audit the accounts and
sign it.
The following are the reason to have statutory auditing:
1.All public limited companies must have their accounts auditing
by external auditors.
2.All government departments and Government owned
companies must get their accounts audited from external
Government approved auditors(usually A.G. Office).
3.All Government funded organizations, corporations, societies;
corporation must get their accounts audited.
4.All registered societies, which collect donations from public,
must get their accounts audited from external auditors.
5.Any company which intends to borrow money from government
or financial institutions must get their accounts audited.
6. Any other company may be asked to get their accounts

The auditing for hotels differ from the type, size

of the hotel. The degree of mechanization has a
great impact on the auditing of hotel. The
auditors must examine the system or internal
check in vogue with regard to the ordering,
purchase, receiving, storing, issuing, etc. He is
also expected to check the system of book and
record keeping in vogue in the hotel. The cash
books receipt and payment side must be
checked and tallied with check books. All
cuttings, overwriting, discount, allowances,
missing checks, etc. must be examined. All
receipts must be made against the proper

As far as possible no cash payments should

be made expect payments made by petty
cashier. Salaries and wages must be paid
by cheques after receiving the bills from
personal department and attendance from
Time Office and the concerned
departments. Cheques should be issued to
suppliers against their bills along with the
supply order, invoice, store keepers
receipt, etc. please also refer to previous
chapter for more details.

NIGHT AUDITING IN HOTELS:

Each hotel appoints a night auditor who works
independently and reports to either Chief
Accountant or to General Manager. His duty
starts after 9 p.m. and works until next day
morning. Due to his night working hours he is
termed as Night Auditor. He audits the
accounts of Front Office Cashier.

He performs the following duties:

1.Reconcile all sales statements submitted by the
various departments cashiers to front office cashiers
throughout the day.
2.He verifies all the debit and credit vouchers at Front
Office Cash.
3. Checks guest folios.
4. Verifies front office cashier reports.
5. In some hotels he is also required to post the un
posted vouchers at Front Desk and also debit all rooms
with the days room tariff.
6.In case of Cash Register Machine (like N.C.R. Cash
Registrex, etc.) He clears the machine.
7.Prepare a statement of bills for those rooms whose
bill crosses a specified amount.
8.He audits night receptionists room reports.
9.He checks the accuracy of accounts like over