AUDIT

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 AUDIT
Audits are performed to ascertain the validity and
reliability of information; also to provide an
assessment of a system’s internal control. The goal of
an audit is to express an opinion of the person /
organization / system (etc.) in question, under
evaluation based on work done on the test basis.
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The general definition of an audit is an evaluation
of a person, organization, system, process,
enterprise, project or product. The term most
commonly refers to audits in accounting, but
similar concept also exist in project management,
quality management, water management, and
energy conservation.
 HISTORICAL BACKGROUND
*The role of auditors goes back many hundreds of years.
These are records from ancient Egypt and Rome, showing
that people were employed to review work done by taxes
collector and estate managers.
*The emphasis was very much on the detection of fraud and
other irregularities.
*Emphasis has changed and role of the auditor becomes
much more sophisticated.
 Basic
Type of
Audits can be categorized in to two
types: Audit
Financial audit

Non financial audit

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Financial audit:
Address questions of accounting, recording, and reporting
of financial transactions. Reviewing the adequacy of
internal controls also falls within the scope of financial
audits.
Non financial audit:
It is non statutory one and serves two purposes
It checks company's compliance to standards
It determines whether a product or service satisfy the
customer's demands in terms of quality and features.
DIFFERENT CATEGORIZATION
OF AUDIT
> Statutory Audit
> Privates Audit
> Internal Audit
> Management Audit
> IT Audit
 Statutory Audit
A legally required review of the accuracy of a company's or
government's financial records. The purpose of a statutory audit to
determine whether an organization is providing a fair and accurate
representation of its financial position by examining information such
as bank balances, bookkeeping records and financial transactions
For Example,
a state law may require all municipalities to submit to an annual
statutory audit examining all accounts and financial transactions and
to make the results of the audit available to the public. The purpose of
such an audit is to hold the government accountable for how it is
spending taxpayers' money.
 Private
Audit
When the audit is not a statutory requirement, but is conducted at
the desire of owners, such an audit is private audit. The audit is
conducted primarily for their own interest. At times the private
audit may become a requirement under tax laws, if the turnover
exceeds a specified limit.
Private Audit is following types
1 audit of sole proprietorship
2 audit of partnership firms
3 audit of individuals accounts
4 audit institutions not covered by statutory audit
 Internal Audit
The examination, monitoring and analysis of activities related to a
company's operation, including its business structure, employee
behavior and information systems.
Internal audit found to play the following roles-
Check weather existing controls are effective and
adequate.
Weather financial and other reports show the actual
results of the company
Weather subunits are following the policies and
procedures laid down by the company.
 Management
Audit
Analysis and assessment of competencies and
capabilities of a company's management in order to
evaluate their effectiveness, especially with regard to
the strategic objectives and policies of the business. The
objective of a management audit is not to appraise
individual executive performance, but to evaluate the
management team in relation to their competition.
 Information System
Audit
Address the internal control environment of automated
information processing systems and how these systems are
used. IS audits typically evaluate system input, output and
processing controls, backup and recovery plans, and system
security, as well as computer facility reviews.
IA's scope of work is comprehensive and considers all aspects
of the organization - both financial and non-financial - with an
emphasis on constructive improvement.
Audit process
Staffing the audit team
Creating an audit project plan
Laying the groundwork for audit
Analyzing audit results
Sharing audit results
Writing audit results
Dealing with resistance to audit recommendations
Building an ongoing audit programs.
 ADVANTAGES OF AUDIT
Companies Directors
Assurance that statutory responsibilities concerning accounts have been carried
out. Availability of expert advise.
The letter of weakness.
To Shareholders
Assurance that accounts show a true and fair view and comply with statutory
requirements
Other Organization with publish accounts Assurance that accounts are reliable
In addition they provide reliable accounts to regulatory bodies such as the
companies Registry, the stock exchange etc.
 OBJECTIVE OF AUDITING
Primary Objective:
To produce a report by the auditor of his opinion of the
truth and fairness of financial statements so that any person
reading and using them can belief in them.

Secondary Objective:
To detect Error and Fraud
To prevent Errors and fraud by the deterrent and moral
effects of Audit
 Other Objectives of Audit
Completeness
Ownership
Accuracy
Valuation
Classification
Disclosure
 Limitation of Audit
An audit can neither help in prioritizing changes nor in
allocating resources.
Audit cannot mobilize people to take actions. though
audit identifies various problems that exist in the
organizational system and processes
Audit can not generate better data than the measures used
to gather those.
 Audit
audit working papers.
Evidence
Audit evidence is evidence obtained during a financial audit and recorded in the

In the audit engagement acceptance or reappointment stage, audit evidence is the

information that the auditor is to consider for the appointment. For examples,
change in the entity control environment, inherent risk and nature of the entity
business, and scope of audit work.

In the audit planning stage, audit evidence is the information that the auditor is to
consider for the most effective and efficient audit approach. For examples,
reliability of internal control procedures, and analytical review systems.
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In the control testing stage, audit evidence is the information that the auditor is to
consider for the mix of audit test of control and audit substantive tests.

In the substantive testing stage, audit evidence is the information that the auditor is
to make sure the appropriation of financial statement assertions. For examples,
existence, rights and obligations, occurrence, completeness, valuation,
measurement, presentation and disclosure of a particular transaction or account
balance.

In the conclusion and opinion formulation stage, audit evidence is information that
the auditor is to consider whether the financial statements as a whole presents with
completeness, validity, accuracy and consistency with the auditor's understanding
of the entity.