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By ISO ..............................................................................................................................................................................................................2
1.2
InvestorWords.com ...........................................................................................................................................................................................2
2.2
7.2
Objective report:................................................................................................................................................................................................4
Types of audit ...............................................................................................................................................................................................................4
8.2
8.3
System audit:.....................................................................................................................................................................................................5
Major phases of process audit .......................................................................................................................................................................................5
10
11
12
12.2
14
Disadvantage of audit..............................................................................................................................................................................................6
15
16
Why an audit is required/ Reasons behind conducting an audit/ why it is important to audit/ why we need to conduct audit? ................................7
17
18
18.2
18.3
18.4
18.5
Page
12.3
13
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
8.1
1
1.1
Definition of Audit
By ISO
The definition of an audit is: A systematic, independent and documented process for obtaining audit evidence and
evaluating it objectively to determine the extent to which audit criteria are fulfilled".
1.2
InvestorWords.com
An examination and verification of a company's financial and accounting records and supporting documents by a
professional, such as a Certified Public Accountant.
Audit is the inspection, examination or verification of a person, organization, system, process, enterprise, project or
product. On the other hand, investigation is an inquiry, or the act of detail examination of activities so as to achieve
certain objectives.
An audit is the inspection, examination or verification of a person, organization, system, process, enterprise, project
or product. It is used to determine the authenticity and validity or to ensure that a process is being followed. Also, an
audit is mainly used in accounting to ensure the validity and reliability of information in the statements and that the
information is free from material error. An audit can be done anytime.
An investigation is the process of detailed examination of activities so as to achieve certain objectives. It is the act
of investigating; or is the study to enquire about a particular thing. It is an important factor in journalism for
investigating various cases. It is the best method to tackle or identify the case; and make a thorough report about the
case. Investigation is made in suspected places. In this, the main focus is on an inquiry into the accounts and
financial matters of a business and to the overall aspects of it.
Description
Owners
Purpose
Process
Scope
Page
Period
Employees
Sequence
Person
performing
work
Legal
Obligations
Audit
Audit means the inspection, examination or
verification of a person, organization,
system, process, enterprise, project or
product.
Audit is conducted on behalf of owners only
and they make the appointment.
To determine the true and fair view.
Routine process
It includes only an examination of the
accounts of a business
Investigation
Investigation means an inquiry, or is the act of
detail examination of activities so as to achieve
certain objectives.
Investigation may be conducted either by owner
of the undertaking or by an outsider.
Varies from business to business
Investigation is not a regular process
It covers an examination of the accounts bur also
covers an inquiry into other matter that are
connected with the purpose for which it
is undertaken
May cover several years
May examine personally
Usually conducted after the audit of accounts
Investigation may be take on even by a nonchartered accountant
There is no such legal obligations with regard to
investigation
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
2.1
Investigation is the act of detail examination of activities so as to achieve certain objectives. Specially, investigation
is made in suspected places. It finds out the nature and reasons of suspected areas but auditing is the act of
examining books of accounts so as to prove true and fairness of operating results and financial position of a
business. Following differences can be seen between auditing and investigation:
1. Purpose
An audit is carried out for the purpose of ascertaining whether or not the balance sheet and profit and loss account
show true and fair view of the state of company's affairs and its profit or loss. But an investigation aims at
establishing a fact or is carried out for some particular purpose i.e. to know the financial position of the concern or
the earning capacity of the concern etc.
2. On Behalf
An audit is carried out on behalf of the proprietor of the business, while an investigation may be conducted on behalf
proprietors when they suspect any fraud in their business or on behalf of outside parties who wish to lend money or
intend to purchase business or at the instance of the government on the request of the shareholders.
3. Scope
An audit includes only an examination of the accounts of a business whereas an investigation covers not only an
examination of the accounts but also an inquiry into other relevant matters connected with the purpose for which it is
undertaken.
4. Use of Techniques
An audit is usually a test checking but an investigation is a much more thorough examination of the books of
accounts. It goes into the depth of the problem and keeps on looking for far more definite evidence to arrive at a
conclusion that it can firmly substantiate. Further, investigation may be conducted even after the audit of the
accounts.
5. Period
An audit is related to only a year or six months while investigation may cover several years.
6. Statutory Obligation
In the case of joint stock companies, audit is compulsory under law while there is no such statutory obligation with
regard to investigation.
In audit, an auditor has to see whether the methods of valuation and other accounting policies have been consistently
followed or not and he has to ensure that all disclosures have been properly made in the financial statements, while
an investigation is not at all bound by accounting conventions, policies and disclosure requirement.
Page
Who Is Auditor?
A person who has prescribed qualification to conduct an audit. In other words an official whose job is to carefully
check the accuracy of business records.
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
Education
Training
Experience
Personal attitude
Elaboration of auditor
A = Analytical
U = Unbiased/unassuming
D = Diplomatic
I = Independent/inquisitive
T = Thorough
O = Objective
R = Reliable
7.1
Subjective report:
Subjective report or writing is based on personal opinions, interpretations, points of view, emotions and
judgment. Example: In a news paper, the editorial section is the place for subjectivity.
7.2
Objective report:
Objective report or writing is fact-based, measurable and observable; It reviews many points of view. It is
intended to be unbiased. Example: News reporters are supposed to be objective and report the facts of an
event.
8
8.1
Types of audit
Process audit:
Objectives:
1.
2.
8.2
Product audit:
Page
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
Process audit is conducted to evaluate the contents and effectiveness of specific processes and work
activities.
8.3
System audit:
System audit is conducted to evaluate all the elements of the quality system in order to
Objective:
1.
2.
3.
4.
12 Objectives of audit
Page
Basic objective of auditing is to prove the fairness of results presented by P/L account and financial position
presented by balanced sheet. Its objectives are classified into two groups which are as follows
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
1.
2.
3.
4.
5.
6.
2.
Misrepresentation of cash
Misrepresentation of goods
Manipulation of accounts or falsification of accounts without any
misappropriation
Under valuation or over valuation of stock
Normally such frauds are committed by top level executives of the business. So, the explanation given
to the auditor also remains false. So, an auditor should detect such frauds using skills, knowledge and
facts.
1.
2.
3.
Page
14 Disadvantage of audit
1.
2.
The payment of audit fees brings extra cost burden to the organization.
During an audit the auditor requires the attention of several company staff and therefore causes disruption.
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
13 Limitations of audit
Audited accounts are readily accepted by government authorities like tax authorities and central bank.
By auditing the account errors and frauds can be detected and rectified in time.
Audited accounts carried greater authority than the accounts which have not been audited.
For accessing finance from financial institutions like banks, previous years audited accounts are evaluated
for determining repayment capability.
Regular audit of account create fear among the employees of the accounts department and exercise the
great moral influence on client staffs thereby restrained them from committing fraud and errors.
Audited accounts facilitate settlement of claims on the retirement or death of partner.
2.
3.
4.
Mandatory audit:
The audit may be required on mandatory basis. According to company act 1994 audit is mandatory for
joint limited company. For no non-limited company audit is not required.
Constitutional audit:
The audit must prepare if the constitution required. This type of audit depends on the types of contract.
Any crisis which counts to destroy rules and regulation then, constitutional audit is required.
By the clients demand:
According to cliental demand the audit is done by the organization, especially for shareholders, customers
and other stakeholders.
Special requirement/ direction:
When government or most of the shareholders or directors think that audit is necessary to prove the
accuracy of the financial accounts or other statements, then audit is required.
17 Scope of auditing
The determination of the scope of an audit depends upon the nature of audit.
The scope of audit is expanded day by day because of changes of economic condition in the country.
The scope of audit is as follows
1. It is applicable to trading and non-trading business concern
2. Financial audit for financial company
3. Cost audit for manufacturing company
4. Managerial audit for management activities
5. Government audit to control the financial and non-financial institutions run by the government.
6. Internal audit to develop the ICS (Internal Control System) of the company. That is employees control
system of the company
7. External audit
Page
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
Scope of an audit means the extent of audit tasks, which are determined by an authority for conducting the
audit of company.
Statutory audit:
Statutory audit is a compulsory when the appointment of auditors. Manners of audit, contents of
audit report are specially mentioned in any enactment. It is to be carried out by an auditor called a
statutory auditor.
b) Government audit:
The main function of Government audit is to examine the government account under prescribed
government audit rules and to inform the government about the findings and suggestions.
c) Private audit:
The audit activities which are done by sole properties, partnership firms, called private audit.
In case of private audit, there is no statutory or constitutional compulsion to get accounts audited.
External audit:
The audit is said to be external if the appointment of an auditor is made by persons other than
those whose performance is evaluated by auditor.
b) Internal audit:
An audit is said to be internal when the auditor is appointed by persons who are responsible for the
performance of the entity. An internal auditor is usually appointed management of the company.
Continuous audit:
Continuous audit is an audit which involves a detailed examination of the books of account at
regular intervals during the financial year and checks each and every transaction and also profit
and loss account and balance sheet.
b) Interim audit:
This type of audit is conducted when the management of an organization desires to know the
trading results of the business. In order to declare interim dividend or where audited financial
statements are required to be issued soon after the closure of the financial year. It is a kind of audit
which is conducted between the two periodical or balance sheet audit.
Financial audit:
Page
b) Cost audit:
Cost audit is concerned with the verification and examination of goods of cost account in order to
ensure whether this have been correctly maintained in accordance with the system of cost
accounting employed by the company.
c) Management audit:
Management audit is critical review of policy and practices of management. It involves review of
several of process of management. Its aim is to reveal the shortcomings or irregularities in
management and suggest ways and means of management for improving operational profitability
and organizational viability.
Complete audit:
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka
Financial audit is the examination of financial result. Financial audit is express opinion on the
truth and fairness of financial condition and operating results of the entity.
Page
In complete audit there is no restriction placed on auditor. In the matter of coverage of audit the
client cannot put any restriction with regard to coverage of audit in case of statutory audit.
Therefore, it is an example of complete audit.
b) Partial audit:
In case of partial audit, usually the areas to be covered in audit are limited by specific agreement
to this effect. When the auditor accepts partial audit he or she should clearly mention on his/her
report that he has performed only partial audit as per institutions of his client.
Prepared By- Fahad, Zonayed, Kamrul, Department of Management, 19th Batch, Section-B
University of Dhaka