INTRODUCTION:

Auditing is globally recognized. It is counter check to accounting data so that any error,
mistake or fraud can be easily detected through the technique of auditing. It is the
primary source of advice on efficiency, effectiveness and overall economy of an
establishment. Auditing starts its journey where accounting end.
In todays society the exercise of an auditors to the economic and ethical leadership sets
the bounding standard or in other words equips an auditor in such a way that recognizes
him as a reliable body. With the growing conscious recognition of the importance of
financial data in the ordering of everyday business and economic life, the need of basic
economic facts is providing a constantly enlarging opportunity for the accounting
profession. The auditors' reports have an especial capacity to fulfill the need for reliable
and authoritative financial material not only because of the reputation or prestige of the
certified statements, but also because of the significance generally attached by the
business man to the functions of the auditor and his reports. These functions, and the
scope of these reports, have in the past been definitely related to the character of and
changes in business activity.
Audits and reviews are basically procedures performed on the financial statements of a
company, for the purpose of determining whether the financial statements include any
material misstatements. Misstatements are essentially wrong numbers due to numerical
errors, fraud, or errors in interpreting the accounting rules. Misstatements are material if
they are large enough to make a difference to a user of the financial statements, such as a
bank or investor. And the person who involved in auditing is known as auditor. It also
provides the techniques necessary to examine the internal control system of a company
and perform operational or compliance audits by internal or external auditors.
The early conceptions of the functions of the auditor were such as to confine him to the
duties of a mere checker and verifier of debits and credits. As business became more
complex in its interrelationships there has been a compensating broadening demand for
the acceptance of new and formerly unrecognized responsibilities by the auditor.

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HISTORY OF AUDITING
Auditing existed primarily as a method to maintain governmental accountancy, and recordkeeping was its mainstay. It wasn't until the advent of the Industrial Revolution, from 1750 to
1850, that auditing began its evolution into a field of fraud detection and financial
accountability. Businesses expanded during this period, resulting in increased job positions
between owners to customers. Management was hired to operate businesses in the owners'
absences, and owners found an increasing need to monitor their financial activities, both for
accuracy and for fraud prevention. In the early 20th century, the reporting practice of
auditors, which involved submitting reports of their duties and findings, was standardized as
the "Independent Auditor's Report." The increase in demand for auditors lead to the
development of the testing process. Auditors developed a way to strategically select key cases
as representative of the company's overall performance. This was an affordable alternative to
examining every case in detail, and it required less time than the standard audit.

WHAT IS AUDITING:
Auditing is an art and science of systematically scrutinizing the books of accounts and other
relevant records of an enterprise in order to find out the exact financial position of the
concerned enterprise for the sake of stakeholders. Auditing is the managements primary
source of advice on efficiency, effectiveness of the company.
Thus the word audit is derived from the Latin word audire which means to hear. In
olden times, whenever the owners of a business suspected fraud, they appointed certain
persons to check the accounts. Such persons sent for the accountants and heard whatever
they had to say connection with the accounts. It was an Italian, Luca Paciaio, who first
published his treatise on double entry system of book-keeping for the first time in 1494. He
mentioned and described the duties and responsibilities of an auditor, since then; there have
been lot of changes in the scope and definition of audit and the duties and responsibilities of
an auditor.
Spicer and Pegler , have defined Audit as such as examination of the books, accounts and
vouchers of a business, as will enable the auditor to satisfy himself that the balance sheet is
properly drawn up, so as to give a true and fair view of the state of the affairs of the business,
and whether the profit and Loss account gives a true and fair view of profit or loss for the
financial period, according to the best of his information and the explanations given to him
and as shown by the books and if not, in what respect he is not satisfied.
F.R.M. De Paula, an English authority on auditing literature, describes auditing as the
examination of a balance sheet and Profit and Loss account prepared by others, together with
the books, accounts, and vouchers relating thereto in such a manner that manner that auditor
may be able to satisfy himself and honestly report that, in his opinion, such balance sheet
properly drawn up so as to exhibit a true and correct view of the state of affairs to the
particular concern according to the information and explanations given to him, and as shown
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by the books. He further continues that an audit of a balance sheet involves the verification
of the profit and loss account, as the balance of that account must be included in some form
or other in the former.
According to Lawrence R. Dicksee, "an audit is an examination of accounting records
undertaken with a view to establishing whether they correctly and completely reflect the
transactions to which they relate. In some instances, it may be necessary to ascertain whether
the transactions themselves are supported by authority."
R. K. Mautz defines auditing as being "concerned with the verification of accounting data,
with determining the accuracy and reliability accounting statement and reports."
It is clear from the above definitions that auditing is the systematic and scientific examination
of the books of a accounts and records of a business so as to enable the auditor to satisfy
himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as
to exhibit a true and fair view of the financial state of affairs of the business and profit or loss
for the financial period. The Auditor will have to go through various books and accounts and
related evidence to satisfy himself about the accuracy and authenticity to report the financial
health of the business.
PURPOSE OF AUDITING:
The overall purpose of an audit function is to provide for verification of records, processes or
functions in a sufficiently independent manner from the institution or subject being audited in
order to add its value and improve its operations. Specifically, its objectives are:

To detect any error, mistake or fraud in the books of accounts and other relevant
records of an enterprise.
To independently identify information that which is essential to develop an overall
picture of the institution/local authority.

To identify any weaknesses or administrative flows which otherwise would not be

identified due to unwillingness or inability by insiders of the institutions.

To identify strengths and weaknesses of the administrative structures in order to

inform decisions on overall strengthening of the institution.

To provide baselines on which reforms can be assessed.

To perform an independent assessment of an action, function, or system, in order to

determine the effectiveness of that action, function, or systems ability to control risk.

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AUDTOR AS AN ECONOMIC GUARD AGAINST FRAUD

An auditor is the most reliable economic guard against fraud. Auditors tasks are performed to
ascertain the validity and reliability of information; also to provide an assessment of a
systems internal control. The goal of an auditor is to express an opinion on the person or
organization or system in question, under evaluation based on work done on a test basis. Due
to practical constraints, an audit seeks to provide only reasonable assurance that the
statements are free from material error. Hence, statistical sampling is often adopted in audits.
In the case of financial audits, a set of financial statements are said to be true and fair when
they are free of material misstatements- a concept influenced by both quantitative and
qualitative factors.

PROFESSIONAL ETHICS OF AN AUDITOR:

HONESTY
The meaning of honesty: In a plain meaning, honesty is to admit, to say or to give
information according to the fact and the truth. In practice and it's application, by law
someone's honesty is being marked by the accuracy of one's confession or what has been told
against the actual and the truth of what has happened. When we stick to the plain meaning
and literally, so if someone said something that is not according to the truth and the reality or
did not admit about anything that according to the fact, this person can be regarded or
appraised dishonest, lying, hypocrite, etc.
Why do we have to be honest? : Elderly has told us that we have to be an honest person. In
educating and motivating a child to become an honest person, it is often said that honesty is a
very good behavior, also other people including being loved by God will trust it. However,
after trying to think it over and to dive into this matter, it is still need to be considered; " Why
do we have to be honest?". Mostly, the answer would be honesty is a very good behavior, or
sometime it also said that: we have to be honest, no matter what! These answers are not
satisfying at all, it is still being asked: why do we have to be an honest person? What would
be the positive side of it?
How is to have an honest conduct? : How is that honesty can be perform in our daily life,
and how is our behavior to become an honest Tao practitioner?

Are we not suppose to lie at all?

Is it possible that we always honest in our daily life?
Or is there any tolerance where we could lie in certain thing for the sake of any
interest?
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PROFESSIONALISM
Professionalism and work ethic are two important features in the small-business environment.
Business owners often use these elements to ensure that their company operates in the highest
professional and ethical manner possible. While businesses may be started under a variety of
circumstances, they often contain similar business elements. The style and organizational
structure may also depend on the entrepreneurs personal use of professionalism and his work
ethic when handling business situations.
Definition: Professionalism is often defined as the strict adherence to courtesy, honesty and
responsibility when dealing with individuals or other companies in the business environment.
This trait often includes a high level of excellence going above and beyond basic
requirements. Work ethic is usually concerned with the personal values demonstrated by
business owners or entrepreneurs and instilled in the companys employees. The good work
ethic may include completing tasks in a timely manner with the highest quality possible and
taking pride in completed tasks.
Features: Professionalism and the work ethic demonstrated by individuals in the business
environment may be built around an internal moral system or code of ethics. Morality and
ethics usually represent the personal beliefs individuals display when working in business.
Common traits often include transparency, honesty and integrity. These personal traits often
display themselves publicly when individuals respond to various business situations. A
professional work ethic may be seen as somebody walking the walk regarding their
personal morality and ethics.

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Function: Small businesses often use professionalism to help them establish a good
reputation in the business environment. Because many small businesses have limited
capital resources during the early years of operations, an important advertising strategy
is word-of-mouth. Small businesses that treat each customer in a professional manner
and display a strong work ethic when completing business functions or responsibilities
can help develop positive goodwill with consumers.
Effects: Business owners and entrepreneurs may decide to create a written set of guidelines
outlining their companys professionalism and work ethic expectations. These written
guidelines can help the business owner translate his company's mission or vision to
employees. These guidelines may also be included in the company's employee manual
so business owners can properly train and educate individuals about the importance of
the companys professionalism and work ethic.
Considerations: Transforming an individual's understanding of professionalism and work
ethic may be a difficult process in small business. Many individuals may not have the
same views on professionalism and work ethic as the business owner. Business owners
may hire these individuals if they have technical experience or expertise in the
business, regardless of the employees personal moral or ethical beliefs. But employees
often adopt the businesss professionalism and work ethic guidelines when working for
a company, especially if they are well compensated.
Integrity
The integrity of Auditors establishes trust and provides the basis for reliance on their
judgment. Integrity requires Auditors to observe both the form and spirit of auditing
standards. It also requires observing the principles of independence, objectivity, standards of
professional conduct, and absolute honesty in their work.
If you have integrity, nothing else matters. If you dont have integrity, nothing else matters.
Alan K. Simpson
If I were to ask you what attribute is the most influential in regard to the success of a
business, would you know immediately which one is the most important? Based on my many
years as a business owner and entrepreneur, I have discovered that at the very top of the list is
the distinguishing quality of integrity. Without integrity at the helm of a company, a business
is usually short-lived. In fact, when business integrity is present throughout the deepest layers
of a company and not just at its surface, it becomes the heart and soul of the companys
culture and can mean the difference between a company that succeeds and a company that
falters.
The Internets Immeasurable Impact on the Marketplace!
The importance of integrity has always existed among the business community, but in recent
times has been shown as falling short. It is the Internets immeasurable impact on the global
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marketplace that is now making the expression of integrity, reliability and credibility
extremely important. Furthermore, the consequence of global competition means that
customers will simply not consider a company that shows any less than the highest level of
integrity. Since there is a wealth of competitive companies easily available and accessible via
the Internet, there is in fact no need to accept anything less than the best.
Where Does Integrity Start?
In an effort to build upon a foundation of integrity, the first requirement would be to establish
excellent rapport with clients. Based on many years of study, the best and most practiced
method for achieving rapport is by way of Relationship Marketing. Just as it sounds,
Relationship Marketing is founded on the single and most critical characteristic, known as
Integrity. However, achieving true integrity with clients often leaves many an entrepreneur
bewildered, grasping for techniques and strategies that guarantee their futures. But integrity is
not something that can be grasped and then simply used. Integrity in its essence must be so
ingrained within the nature of an individual, its company and the team members, that it
remains steadfast no matter what. Without question, others sense it and find it very attractive.
The True Nature of Integrity!
Now you are probably asking yourself, what is the true nature of integrity? There are in fact
some very basic principles that surround the qualities of business integrity. At its core,
integrity begins with a company leader who understands the qualities of integrity which then
filters down throughout the company into every department and every members approach
and attitude.
In recent research performed by the Institute of Business Ethics- an organization which is
among the worlds leaders in promoting corporate ethical best practices, it was found that
companies displaying a clear commitment to ethical conduct almost invariably outperform
companies that do not display ethical conduct. The Director of the Institute of Business
Ethics, Philippa Foster Black, stated: Not only is ethical behavior in the business world the
right and principled thing to do, but it has been proven that ethical behavior pays off in
financial returns. These findings deserve to be considered as an important tool for
companies striving for long-term prospects and growth.
The following 7 Principles of Business Integrity are the basics of integrity and a good starting
off place to consider. By integrating each of these principles within a company environment,
the result will be nothing short of a major rebirth of the enterprise.
Principle #1 Recognize that customers/clients want to do business with a company they can
trust; when trust is at the core of a company, it is easy to recognize. Trust defined is assured
reliance on the character, ability, strength, or truth of a business.

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Principle #2 For continuous improvement of a company, the leader of an organization must

be willing to open up to ideas for betterment. Ask for opinions and feedback from both
customers and team members and your company will continue to grow.
Principle #3 Regardless of the circumstances, do everything in your power to gain the trust
of past customers and clients, particularly if something has gone awry. Do what you can to
reclaim any lost business by honoring all commitments and obligations.
Principle #4 Re-evaluate all print materials including small business advertising, brochures
and other business documents making sure they are clear, precise and professional; most
important make sure they do not misrepresent or misinterpret.
Principle #5 Remain involved in community-related issues and activities thereby
demonstrating that your business is a responsible community contributor. In other words, stay
involved.
Principle #6 Take a hands-on approach in regard to accounting and record keeping, not only
as a means of gaining a better feel for the progress of your company, but as a resource for any
questionable activities; gaining control of accounting and record keeping allows you to
end any dubious activities promptly.
Principle #7 Treat others with the utmost of respect. Regardless of differences, positions,
titles, ages, or other types of distinctions, always treat others with professional respect and
courtesy.
While it is most certainly an integral and positive step for a small business to recognize the
significance of integrity as a tool for achieving its desired outcomes, that is only the
beginning. What must truly be recognized for true success is that while certain precise
universal principles lead to business integrity, it is in the overall mindset of the company and
the unfailing implementation of these key elements that an enterprise is truly defined. A small
business that instills a deep-seated theme of integrity within its strategies and policies will not
only be evident among customers, associates and partners, but its overall influence cannot
help but to result in a profitable, successful company. By recognizing the value of integrity,
and following each of the aforementioned 7 principles for achieving integrity, your success
cannot be far off.
Present Day Audit Situation
It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and
caution which a reasonably careful, cautious auditor would use. What is reasonable skill, care
and caution must depend on the particular circumstances of each case. An auditor is not
bound to be a detective, or, as was said to approach his work with suspicion, or with a
forgone conclusion that there is something wrong. He is a watchdog, not a bloodhound. He is
justified in believing tried servants of the company in whom confidence is placed by the
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company. He is entitled to assume that they are honest and rely upon their representations,
provided he takes reasonable care.

Ironically, since that definitive statement, there has been a gradual metamorphosis in an
auditor's duty of care. It is no longer sufficient for an auditor to rest upon the honesty and
accuracy of others. He must go further and satisfy himself that accounts upon which he relies
have been taken on sound accounting principles. In the later case Fomento (Sterling Area)
Ltd. v Selsdon Fountain Pen Co. Ltd. (1958), Lord Denning put it this way:

"To perform his task properly he must come to it with an enquiring mind - not suspicious of
dishonesty - but suspecting that someone may have made a mistake somewhere and that a
check must be made to ensure that there has been none."
Interestingly, the 1997 amendments to the Banking Act and the Financial Institutions Act
raised the standard from the duty of having an "enquiring mind" to that of having a
"suspicious mind". The role of the modern auditor of banks and financial institutions was
thereby effectively transformed from that of "watchdog" to "bloodhound".
Under section 19A(1) of both Acts, auditors have a duty to report in writing to the chief
executive office, each director and to the Supervisor (defined as the Supervisor of Banks and
Financial Institutions appointed under the Bank of Jamaica Act) any "material transactions or
conditions" obtaining in a bank or financial institution which in the auditor's opinion amount
to:
* changes in accounting policy which have the effect of misrepresenting the financial
position;
* transactions or conditions which give rise to potential exposure or exposure which may
jeopardize viability;
* transactions or conditions which indicate that internal controls are significantly weak;
* transactions that are irregular and that have a significant or material impact on the financial
position;
* transactions or conditions that contravene the Acts or regulations as regards capital
adequacy or liquidity requirements;
* transactions or conditions which in the opinion of the auditors ought to be included in such
a report.
An auditor is therefore mandated to approach his duties with suspicion and to take an
investigative approach to each transaction. We await with interest the Court's interpretation of
the words "material conditions or transactions". Hopefully, future judgments will guide
auditors
by
providing
greater
definition
of
these
concepts.
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In the meanwhile, pressing questions which now arise are:

* Should auditors protect themselves by reporting all transactions and conditions, and thereby
risk incurring the displeasure and loss of clients?
* Can the directors sue auditors for breach of statutory duty and do these duties take
precedence over the common law duty to the company and its members?
* When audited accounts induce investment in a Bank or Financial Institution followed by an
alleged breach of statutory duty (which in law cannot be disclaimed), is the auditor liable to
pay damages to the investor?

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CONCLUSION
This exercise aims at building transparency and enhancing accountability of key officials and
decision makers within the organization being audited. Positive findings of an independent
audit can go a long way in building public trust in the organization, while negative findings
can serve to catalyze change. So an auditor is the most reliable economic guard to check the
day today financial transaction of an entity. But in present situation it has been seen that there
are several auditors who are trying to unethical practice which are only give benefit to them
but it brings negative effect in the economy. Some recent study shows that auditor sometimes
pursue some illegal activities which may result the dissatisfaction to the external users of
audit report like investors as well as country faces economic destruction only because of
those fraud activities. Thats why now a days honesty, integrity and dedicated professionalism
is cry of the business world.

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REFERENCES
1.

Cutting, Thomas (January 12, 2008). "How to Survive an Audit". PM Hut.

http://www.pmhut.com/how-to-survive-an-audit. Retrieved December 13, 2009.
2. en.wikipedia.org/wiki/Audit
3. www.co.delaware.oh.us/auditor/
4. www.accountancy.com.pk/articles.asp?id=140
5. en.wikipedia.org/wiki/External_auditor
6. History of Auditing | eHow.com http://www.ehow.com/about_4681905_history-ofauditing.html#ixzz0wdwdYwUU
7. www.collegetermpapers.com/TermPapers/.../history_of_auditing.shtm

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