POA 1 (Prepared)
POA 1 (Prepared)
Auditing Concepts
Definition of Auditing:
According to American Accountants – A systematic examination
of books and records of a business or other organizations, in
order to check or verify and to report upon facts regarding its
financial operations and the results there of.
According to Institute of charted accountant of India – The
independent examination of financial information of any entity,
whether profit oriented or not and irrespective of its size and
legal form, when such an examination is connected with a view
legal form, when such an examination is connected with a view
to express an opinion there on.
Elements of Auditing:
1) Systematic Examination by Qualified person
2) Independent Examination
3) Express an opinion to the truth and fairness
4) Auditor collects and evaluates the evidence
5) Judgement of the auditor towards management
6) Review operations and performance of scope of audit
Principles of auditing:
1) Integrity, Objectivity and Independence
2) Confidentiality
3) Skill and Competence
4) Documentation
5) Planning
6) Audit evidence
7) Accounting and internal control
8) Audit conclusion and Reporting
Functions of auditing:
1) Reviewing system and procedures
2) Examining documentary evidence
3) Reviewing the system of accounting and internal control
4) Verify the valuation and existence of assets
4) Verify the valuation and existence of assets
5) Examine the arithmetical accuracy of statements
6) Check whether the statutory requirement have complied
7) Ensure GAAP and accounting standards are followed
correctly
8) Reporting to what extend accounts exhibit truth and
fairness
9) Recommendations for improvement of internal control
and accounting system.
Verify the distinction between capital and revenue items
Difference between Accounting and Auditing:
BASIS ACCOUNTING AUDITING
Meaning Systematically keeping Auditing means
the records of the inspection of the books
accounts of an of accounts and
organization and financial statement of
preparation of financial organization
statement at the end of
financial year
Governed Accounting Standard Standards on auditing
by
Work Accountant Auditor
performed
by
Purpose To show the To reveal the fact that,
by
Purpose To show the To reveal the fact that,
performance of to which extend
financial position of the financial statements
organization gives true and fair
value
Period Accounting is a Auditing is a periodic
continuous process, process
day to day recording of
transactions are done.
Sequence Accounting starts at Auditing starts at end
end of book keeping of accounting
Objectives of auditing:
1) Primary objective:
• Promoting efficiency
• Promoting accuracy
2) Secondary objective:
a) Identification of error
• Clerical error
*Error of commission
* Error of omission
• Compensating error
• Error by principle
b) Identification of fraud
• Misappropriation of cash
• Misappropriation of cash
• Misappropriation of goods
• Misappropriation of accounts
c) Secondary objective
• Prevention of error
• Prevention of fraud
Advantages of auditing:
1) Safeguarding the interest of persons not associated with
the management
2) Acts as a moral check on the employee
3) Helpful in settling liability for taxes
4) Useful for settling trade disputes
5) Helps in deduction of wastages and losses
6) Govt may require audited and certified statement
Disadvantages of auditing:
1) Auditing is Costly
2) Auditing requires experts
3) Impossible to check all transactions
4) Unsuitable for small businesses
5) Bribes and threats
Types of auditing:
1) Audit requires under law
1) Audit requires under law
2) In the voluntary category
3) Internal and external audit
4) Information system audit
5) Forensic audit
Engagement Standards