unit 1 mba audit

8/2/2019 Unit 1 MBA Audit

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Auditing Today

Unit 1


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Audit

The word audit is derived from the

Latin word audire, which means to

hear

Is a systematic examination of the booksand records of a business or otherorganization in order to ascertain orverify, and to report upon the facts

regarding its financial operations andthe results thereof.


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Nature of Auditing

An intelligent and a critical examination ofthe books of accounts of a business

Done by an independent person or body ofpersons qualified for the job

Help of vouchers, documents, information andexplanations received from the authorities

Satisfaction with the authenticity of financialaccounts

Prepared for a fixed term

Report for Financial Statements


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Key Phases

Economic informationa) Financial statements

b) Closing statements

c) Statements prepared to facilitate managerialcontrol

d) Stock records and stock statements

Reporting Collection and evaluation of

evidence


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Scope of Audit

Determination of the fairness andauthenticity of reported financialposition

Detection and prevention of errorsand fraud


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Objects of an Audit

Main objects :- Expression of expertopinion

Secondary objects :- Detection andprevention of Errors & Frauds

Specific objects


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Types Of Errors

Clerical Errors :- errors arecommitted in posting, totalingand balancing

(a) Errors of Omission

(b) Errors of Commission

Errors of Principle

Compensating Errors or off-setting errors

Errors of Duplication


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Location of errors

Scrutiny of the books of accounts

Castings of ledger accounts should be tallied withthose given in the trial balance

Ledger postings

The names of the accounts in the ledgershould be compared with names of accountsrecorded in the trial balance

The lists of debtors and creditors should betotalled

Trial balance tallied with previous years

Casts and carry forwards should be examined


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Detection of fraud

Embezzlement of cash

Misappropriation of goods

Fraudulent manipulation of accounts


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Types of audit

On the basis of legislative control Statutory audit,Govt. audit, Private audit.

On the basis of relation of auditor and Mgt. External audit and Internal audit.

On the basis of periodicity of audit

Continuous audit, Interim audit, Periodical audit,Occasional audit.

On the basis of subject matter of audit Financial audit, Operational audit, Cost audit,Management audit.

On the basis of coverage of audit Complete

audit, Partial audit. On the basis of manner of checking Standard

audit, Balance sheet audit, Post and Vouch audit


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Relations of auditor vis--visManagement

External audit

Internal audit


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Qualities of an Auditor

Professional or StatutoryQualities

Personal qualities or GeneralQualities


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Professional or Statutory Qualities

Knowledge of principles and practice ofgeneral accounting

Cost accounting Management Accounting

Knowledge of techniques of auditing Provisions relating to different taxes Economics Business Laws or Commercial Law and

Company Law

Business management and organizationand financial administration Mathematics and statistics Report writing


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Personal qualities or GeneralQualities

Honesty and Integrity

Impartial

Vigilance

Methodical

An Enquiring Mind

Diligence

Ability to trace out the facts and figures

Ability to maintain secrets

Courtesy Other Qualities


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Business where Continuous Audit isApplied

Where final accounts are prepared justafter the close of the financial year. LikeBanks, Railways etc.

Transactions are many in numbers. System of internal check in operation is

not satisfactory.

Statements of accounts are prepared

after every month or quarter to bepresented to the management.

Sales affected are very Large.


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Auditing is Luxury

Forsmaller concerns

For small vendors, shopkeepers,vegetable or fruit sellers etc.

Which cannot afford high cost ofauditing.

It results in unnecessary wastage of time.

If it is undertaken merely to increase the

prestige and credibility of the concern Lack of competent and independent

auditor


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Development of Auditing in India

Compulsory audit in case of companies was introduced by theCompanies Act of1913

In 1930, the accounting profession was brought under thecontrol of Central Government to ensure uniformity instandards throughout the country.

1949, the Parliament enacted the Chartered Accountants Actand the Institute of Chartered Accountants of India (ICAI)was established.

1956, a new Companies Act replaced the Act of 1913 The Companies Act, 1956 prescribed a cost audit in the case

of specified companies to be conducted by a Cost and WorksAccountants within the meaning of the Cost and WorksAccountants Act of1959.

In 1984, the Income Tax Act, 1961 was amended to providefor compulsory audit of accounts of certain assesses, whichhas further contributed to the growth of auditing profession inIndia.

unit 1 mba audit

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