AUDITING – REPORT

PROJECT REPORT ON AUDITNG

1) WHAT IS AUDITING:
Auditing originates from the Latin term “Audire”, which means “to hear,” -
just as in ancient times auditors used to listen to officers and people of
authority to confirm the validity of their words. Over the years, the role of
auditing evolved to verifying written reports: specifically, the financial
records of individuals and businesses.
Auditing is an official inspection and verification of the credibility of
financial reports. Audits can be conducted by either a business’s management
as an internal control process or by the government, in case they notice
suspicious financial activity.
The main goal of auditing is to make sure that a company’s financial
statements are accurate and are following regulatory guidelines. Auditing also
gives investors, creditors, and other stakeholders reasonable assurance that
they can rely on a company and its integrity.
For small businesses, an accounting error of a few thousand dollars might be
significant, but for a large corporation like Apple or Amazon, such a material
mistake may be considered as a conventional mistake and not a cause for
concern.

TYPES OF AUDITING:

 Internal Audits
 External Audits
 Irs Audits
1) Internal Audits:
An internal audit is an audit performed by a qualified auditor or accountant
who is part of your company. This audit helps assure your business is in
compliance with laws and regulations and is accurately recording financial
information. Regularly performing these internal audits also ensures risk
management and guards you against possible issues such as fraud, waste, or
financial abuse.
2) External Audits:
An external audit is an audit of your financial statements made by
an independent, third-party professional. These types of audits can be
extremely helpful as they’re more unbiased and reliable than internal audits.
External auditors can be candid and honest about the issues found during the
audit, without affecting daily work relationships within the business. Key
responsibilities of an external auditor include planning and implementing
audit procedures, examining accounts and financial statements, analyzing
business risks, preparing an audit report, and discussing the end conclusion
with the management department of their client.
3) Irs Audits:
Internal Revenue Service (IRS) audits, or tax audits, are government reviews
conducted to a business to ensure that financial data has been reported in
compliance with tax laws. Sometimes, IRS audits are conducted randomly,
but more often than not IRS selects businesses based on suspicious activity,
such as unusual deductions or uncommon sources of income. If you’re
selected, the audit will either be conducted by mail, at the IRS offices, or in
your business field.
 2) OBJECTIVES OF AUDITING:

The objectives of auditing are changing with the advancement of business

techniques. Earlier it was only to check the correctness of receipts and
payments. The objectives of the auditing have been classified under two heads:

1) Main objective

2) Subsidiary objectives

I) MAIN OBJECTIVE:

The main objective of the auditing is to find reliability of financial position and
profit and loss statements. The objective is to ensure that the accounts reveal a
true and fair view of the business and its transactions. The objective is to verify
and establish that at a given date balance sheet presents true and fair view of
financial position of the business and the profit and loss account gives the true
and fair view of profit or loss for the accounting period. It is to be established
that accounting statements satisfy certain degree of reliability. Thus the main
objective of auditing is to form an independent judgement and opinion about the
reliability of accounts and truth and fairness of financial state of affairs and
working results.

II) SUBSIDIARY OBJECTIVE:

The subsidiary objectives of the auditing are:

1. Detection and prevention of fraud: the one of the important subsidiary

objective of auditing is the detection and prevention of fraud. Fraud refers to
intentional misrepresentation of financial information. Fraud may involve:

a. Manipulation, falsification or alteration of records or documents

b. Misappropriation of assets.

c. Suppression of effect of transactions from records or documents.

d. Recording of transactions without substance.

e. Misapplication of accounting policies

2. Detection and prevention of errors: is another important objective of

auditing. Auditing ensures that there is no mis-statement in the financial
statements. Errors can be detected through checking and vouching thoroughly
books of accounts, ledger accounts, vouchers and other relevant information.

3) IMPORTANCE OF AUDITING:

Importance of auditing can be judged from the fact that even those
organizations which are not covered by companies Act get their financial
statements audited. It has become a necessity for every commercial and even
non- commercial organization. The importance of auditing can be summed in
following points:

a. Audited accounts help a sole trader in knowing the value of the business for
the purpose of sale.

b. Dispute over correctness of profits can be avoided.

c. Shareholders, who do not know about day-to-day administration of the

company , can judge the performance of management from audited accounts.

d. It helps management in detecting and preventing errors and frauds.

e. Management gets advice on financial affairs from the auditors.

f. Long and short term creditors depend on audited financial statements while
taking decision to grant credit to business houses.
 g. Taxation authorities depend on audited statements in assessing the income
tax, sales tax and wealth tax liability of the business.

h. Audited accounts are useful for the government while granting subsidies etc.

i. It can be used by insurance companies to settle the claims arising on account

of loss by fire.

j. Audited accounts serve as a basis for calculating purchase consideration in

case of amalgamation and absorption.

k. It safe guards the interests of the workers because audited accounts are
useful for settling trade disputes for higher wages or bonus.

4) WHO IS AN AUDITOR:

An auditor is a person authorized to review and verify the accuracy of financial

records and ensure that companies comply with tax laws. They protect
businesses from fraud, point out discrepancies in accounting methods and, on
occasion, work on a consultancy basis, helping organizations to spot ways to
boost operational efficiency. Auditors work in various capacities within
different industries.

5) QUALIFICATION OF AUDITOR:

External auditors working for public accounting firms require a Certified

Public Accountant (CPA) license, a professional certification awarded by
the American Institute of Certified Public Accountants. In addition to this
certification, these auditors also need to obtain state CPA certification.
Requirements vary, although most states do demand a CPA designation and
two years of professional work experience in public accounting.

Qualifications for internal auditors are less rigorous. Internal auditors are
encouraged to get CPA accreditation, although it is not always mandatory.
Instead, a bachelor's degree in subjects such as finance and other business
disciplines, together with appropriate experience and skills, are often
acceptable.
QUALITIES OF AUDITOR:
 They show integrity
 They are effective communicators
 They are good with technology
 They are good at building collaborative relationships
 They are always learning
 They leverage data analytics
 They are innovative
 They are team orientated

6) APPOINTMENT OF AUDITOR:
Only a practising Chartered Accountant can be an Auditor of a Company.
Before appointment of auditor of company, the written consent of the auditor
must first be obtained along with a certificate from the Auditor that the
appointment, if made, shall be in accordance with the conditions as prescribed
by the Auditor and that the Auditor satisfies the criteria provided in Section 141
of the Companies Act, 2013 (Provision relating to audit and auditor).

It is optional file ADT-1 for the appointment process of the first auditor. Once
the consent of an Auditor is obtained, then the Board of Directors of the
Company can execute a resolution to appoint the Auditor. The appointment of
the auditor must be conveyed to the Registrar of Companies within fifteen days
of appointment. The first auditor can hold office from the conclusion of that
meeting until the conclusion of its sixth annual general meeting. However, the
company should place the matter relating to the appointment of an auditor for
ratification by members at every annual general meeting.

A)FIRST AUDITOR APPOINTMENT:

 1) The Board of Directors consider the recommendation of the Audit
Committee, if any, and recommend the appointment of auditor to the
members of the company, it would send the recommendation back for
reconsideration. If the audit committee decided not to reconsider its
recommendations, the Board would record the reasons of
disagreement and send its own recommendation to the members of the
company.

2) In case of Government Companies, the first auditor would be

appointed by the Auditor-General of India and Comptroller within 60
days from the date of registration of the company and in case the
Auditor-General of India and Comptroller does not appoint such
auditor within the said term period, the Board of Directors of the
company would appoint such auditor within the next 30 days. The first
auditor may hold office till the conclusion of the 1st Annual General
Meeting.

B) OTHER AUDITOR:

1) The appointment of auditors (other than the first auditors) is required

to be done by the members of the company in the general meeting.
The auditor appointed at the general meeting holds office from the
conclusion of that meeting, with the meeting wherein such
appointment being counted as the first meeting.
2) However, where the casual vacancy is created in the office of auditor
due to registration, the approval of members is required to be obtained
within a period of 3 months from the recommendation date of the
Board. Such auditor may hold office until the conclusion of the next
annual general meeting. For the appointment of the subsequent
auditor, it is mandatory for the Company to file ADT-1 within 15 days
of appointing the auditor.