TOPIC – AUDIT

Presented By – Sakshi Yadav

MHA (Sem – III)
Meaning of Audit
Definitions
Origin and evolution
Objectives of Auditing
Scope of Auditing
 Principles of Audit
Advantages & limitation of Auditing
Types of Audit
 Difference between Internal audit & External audit
Audit Report
Meaning of Audit
◦ The word “audit” comes from the Latin word audire, meaning “to
hear”.
◦ An audit is the examination of the financial report of an
organization - as presented in the annual report - by someone
independent of that organization.
◦ Auditing is a process in which their is systemic and scientific
examination of company accounts by a well qualified person.
◦   Auditor – An Individual appointed by the company owners to
check accounts whenever they suspected fraud, to hear the
explanation given by the person responsible for financial
transactions. 
Auditor can examine the books of accounts to ensure that accounts
of the company is properly maintained or not.
Defintion of Audit
◦  ICAI – “The independent examination of financial information of any entity,
whether profit oriented or not, and irrespective of its size or legal form, when
such examination is conducted with a view to expressing an opinion thereon.”
◦ Prof Montgomery,– “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 operations and the results
thereof”.
◦ “Audit may be said to be verification of the accuracy and correctness of the
books of accounts by an independent person qualified for the job and not in any
way connected with the preparation of such accounts.” -J.B. Bose
Origin and Evolution of auditing
◦ Auditing is as old as accounting, and there are signs of its existence in all ancient cultures such
as Mesopotamia, Greece, Egypt, Rome, UK, and India.
◦ Double-entry bookkeeping was first described in Italy by Luca Pacioli (1496).
◦ Luca also defined the duties and responsibilities of an auditor since then it is evolving.
◦ The modern auditing established during Industrial Revolution.
◦ In January 1923, the British Association of Accountants and Auditors got established, and a
person could be fully competent to work as a professional auditor after clearing this exam.
◦ In the year 1913 the audit of company account was made compulsory in India.
◦ First act for audit was formed in 1913 under the name of Indian Companies Act
◦ The Government of India Act 1935, gave further recognition to the importance and status of
the Auditor General.
◦ Errors which occur because of innocence and negligence, are of three types:
• Clerical error
• Compensating error
• Error of principles
◦ Again, clerical errors are of two types:
• Error of omission
• Error of commission
◦ However, the frauds which occur with a purpose to gain something by some
influencing methods, they are of three types:
• Exploitation or misuse of cash
• Exploitation of goods
• Manipulation of accounts.
Scope of An Audit
The scope of an audit is the determination of the range of activities and the period of records that are to
be subjected to an audit examination.
scopes of an audit are;
Legal Requirements
Entity Aspects
Reliable Information
Proper Communication
Evaluation
Test
Comparison
Judgments
Types of Auditing
According to the Organization of Business
According to the Ownership of Business
According to the Time of Audit
According to the Objectives of Audit
According to the Organization of Business

◦ Statutory Audit: A statutory audit is a legally required review of

the accuracy of a company's or government's financial statements
and records.
◦ Private Audit - Private companies, ranging from family businesses
to global, publicly trading corporations, are not part of the
government
According to the Ownership of Business
Audit of Companies: Under companies Act, audit of accounts of
companies in India is compulsory.
Audit of Trusts - Accounts of the trust are maintained as per the
conditions and terms of the trust deed.
In the trust deed as well as in the Public Trust Act which provide
for compulsory audit of the accounts of the trust by a qualified
auditor.
Audit of Proprietorship: In case of proprietary concerns, the
owner himself takes the decision to get the accounts audited
Audit of Accounts of Co-operative Societies: Co-Operative societies are established under
the Co-Operative Societies Act, 1912. It contains various provisions for the regulations and the
working of these societies
Audit of Government Offices: Audit of government offices and departments is covered under
this heading. A separate department is maintained by government of India known as Accounts
and Audit Department. This department is headed by the Comptroller and Auditor General of
India. This department works only for the government offices and departments..
Audit of Partnership: Partnership deed on mutual agreement between the partners may
provide for audit of financial statements.
Audit of Individuals: An Individual such as estate managers, rent collectors, investors, etc.
who engaged in business/ or profession is required to maintain books of account and to get
them audited and obtain and furnish Tax Audit Report of the Income Tax Act (1961) from a
Chartered Accountant if the sale, gross receipts or turnover etc. exceeds prescribed limit.
According to the Time of Audit
Interim Audit: When an audit is conducted between two annual audits, such audit is known
as Interim audit.
Continuous Audit: The Continuous Audit is conducted throughout the year or at the regular
short intervals of time. A continuous audit involves a detailed examination of all the
transactions by the auditor attending at regular intervals for example weekly, fortnightly or
monthly, during the whole period of trading.
Final Audit: Final Audit means when the audit work is conducted after the close of financial
year.
Balance Sheet Audit: Balance Sheet Audit relates to the verification of various items of
balance sheets such as assets, liabilities, reserves and surplus, provisions and profit and loss
balance.
According to the Objectives of Audit
Management Audit: Management audit is a systematic examination of decisions and actions
of the management to analyse the performance.
Internal Audit: It implies the audit of accounts by the staff of the business. Internal audit is an
appraisal activity within an organization for the review of the accounting, financial and other
operations as basis for protective and constructive service to the management
Cost Audit: Cost Audit is the verification of the correctness of cost accounts and adherence to
the cost accounting plans. Cost Audit is the detailed checking of costing system, techniques
and accounts to verifying correctness and to ensure adherence to the objectives of cost
accounting
Secretarial Audit: Secretarial Audit is concerned with verification
compliance by the company of various provisions of Companies Act and other
relevant laws.
Independent Audit: Is conducted by the independent qualified auditor. The
purpose of independent audit is to see whether financial statements give true
and fair view of financial position and profits.
Tax Audit: Tax audit mostly covers income returns, invoices, debit and credit
notes and various current and fixed assets.
Limitations of Auditing
◦ If the auditor gets the biased information the accounts will not reveal the true picture
◦ A detailed checking is not possible
◦ It is more useful for the future but less for the past
◦ The payment of audit fee brings extra cost burden to the organizations
◦ During and audit the auditors requires the attention several companies stuff and therefore cause
disruption
◦ An audit doesn’t assure future viability of the organization audited
◦ An audit doesn’t assure the effectiveness and efficiency of management
◦ Auditor express opinions and therefore doesn’t give total assurance of the two fair presentation of
annual reports
An audit report is usually of the financial
records and accounts of a company.
 A report is a statement of collected and
considered facts, so drawn up as to give clear
and concise information to persons who are
not already in possession of the full facts of
subject matter of the report
The audit reporting is the communication of
audit conclusions after having carried out the
audit process in accordance with audit plan.
 Basic element of an audit Report
Title used to prepare the financial statement and
Addressee Expression of opinion on the financial statement.

 Opening or introductory paragraph- Date of the report;

Identification of financial statement audited and Place of signature
A statement on the responsibility of the entity’s auditor’s signature.
management and that of auditor
Scope paragraph-
A reference to the auditing standards generally
accepted in India and
A description of work performed by the auditor.
Opinion paragraph-
A reference to the financial reporting framework