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(PART-4)
(UNIT-1)
MEANING AND OBJECTIVE OF AUDITING
(PART–1)
1. INTRODUCTION
Dear students I welcome you on the lecture series of auditing under
auditing we should start up with unit one and we will discuss in detail
about the subject. It’s the introductory part of auditing where we are
going to learn its meaning and the objective of auditing. So our
primary objective to learn from today’s lecture is to appreciate the
meaning of auditing that means what do we mean by auditing, why
there is the need doing the auditing, what does auditing tells us.
2. MEANING OF AUDITING
According to the general guidelines on internal auditing issued by ICAI
i.e. Institute of Chartered Accountant of India, auditing is defined as a
systematic and independent examination of data, statements, records,
operations and performances, financial or otherwise of an enterprises
were stated purpose. Now net us highlights certain important terms
which are been used in the definition. First of all it’s a systematic and
independent examination, when we say it’s a systematic it means that
certain procedures and plans are being executed so when we conduct
an audit there should be a audit plan, there should be a certain
specific procedure to be followed for conducting the audit. It should
be independent that means auditor should give its opinion or express
its opinion on a very clear manner, it should not be biased, it should
not be effected by the person on behalf whom the audit is been
conducted.
Now what’s the scope of the work? Internal auditors scope of work is
determined by management while the scope of work of external
auditor is being determine by statute that means legal aspect has to be
considered. The law going to take care of these scope of work of
external auditor so wherever there is legal requirement or legal
provisions external auditor has to be abide by the legal requirement to
conduct the audit of the enterprise.
Now what’s the approach of internal auditor and that of the external
auditor? When we talk about the internal auditor his main concern is to
ensure the compliance with the policies, procedures, rules of
enterprises. Then he has to also take care of legal and govt.
regulations that means from time to time the legal requirement of an
enterprise has to be complied with so it’s the responsibility of internal
auditor to ensure that legal compliances are being done.
4. QUALITIES OF AUDITOR
Now let us understand other important feature of auditing i.e.
qualities of auditors. What should be the qualities of auditor when he
conducts the audit so these are the general qualities and not the
person specific every auditor should have these peculiar characteristics
of qualities so that he can be independent integrated and skilful and
competent auditor.
Now what sort of errors are there when an audit is being conducted so
auditor come across various errors now let us understand what are
these errors. The term error refers to an unintentional misstatement in
the financial statement by way of clerical mistake on record or
misinterpretation of facts or stake in application of accounting
principles so what happens that when accounting data’s are being
recorded there can be clerical mistakes in recording the transaction,
there can misinterpretation of facts, misinterpretation of facts means
that if there was certain goods in transit and we considered as goods
and there is not proper interpretation of the fact whether the sale has
taken place or not. Such sort of errors are known as misinterpretation
of facts. Mistakes in application of accounting principle there are
certain accounting principles which we need to abide by so while
applying such accounting principle if there is a mistakes, such mistakes
are also known as errors and they are unintentional nobody is going to
intentionally make such errors they are inherent in the nature of audit
to some extent they can be avoided also.
Now let us understand the types of errors first one is error of omission,
the word omission in its little term is that we have forgotten or
omitted to do something where certain accounting aspect is not at all
been recorded or partially recorded it is known error or omission. Now
error of commission is the second types of error, commission means to
do where certain thing is being done in a wrong way, a wrong entry
can be passed or wrong posting can be done so such errors are known
as errors of commission both errors of omission and commission can be
prevented by careful analysis of the data and there we can cross check
that the posting is not being done properly. Now error of duplication
that means two times entry is being passed so such errors can also be
prevented where control check sheets are being used.
Now next one is fraud: - it’s not that only errors will be there in the
financial statements sometimes there are chances of fraud so let us
understand what the difference between error and fraud. Fraud means
the intentional act while error was an unintentional act. So when there
is a intention act it amounts to fraud. Now what does it includes it is
wilful misrepresentation, wilful means willingly certain thing is being
misrepresented, second is the deliberate concealment of material
pact. There was a material transection but it has been concealed so
that its impact will not common the financial statement. For example
there is a certain expenditure or a big loss is being incurred on certain
items but it has been concealed so that profits could be reflected on a
higher side such concealment of material fact and that to deliberate
would amount to fraud on the part of the enterprise. C is failure to
disclose the material fact for the purpose of inducing another person
or putting him at a disadvantage. Here C point is different from B
because here another person is being put in disadvantages position by
cancelling the data;
6. SUMMARY
Now we are summing up our lecture of today certain other features in
relation to the fraud will be continued in our next lecture. In today’s
lecture we have learned about the meaning of auditing and objective
of auditor as well as the functional classification of auditor. With this
we are ending up our lecture of today.
Thank you