BACKGROUND                                                                                           

                             AUDITING MEANS TO EXAMINE THE ACCOUNTING DATA. IN ORDER TO DETERMINE THE   RELIABILITY OF THE FINANCIAL STATEMENTS. THE FIRST COMPANIES ACT WAS INTRODUCED IN 1844 IN ENGLAND AND AUDIT BECAME STATUTORY REQUIREMENT FOR JOINT-STOCK COMPANIES. THE FIRST PUBLICATION ON DOUBLE ENTRY SYSTEM OF BOOK COMES IN 1494 IN WHICH AUTHOR LUCO PACIALO ALSO STATED DUTIES AND LIABILITIES OF AN AUDITOR. IN the FIFTEENTH CENTURY IT WAS COMMON TO CALL ON AUDITORS TO ENSURE ABSENCE OF FRAUD IN THE RECORDS KEPT BY STEWARDS OF ESTATES DOMAINS AND MANORS. IN THOSE DAYS WHENEVER MONARCH (MERCHANT) SUSPECTED ERRORS OR FRAUD IN THERE ACCOUNTS, SUITABLE PERSON WERE APPOINTED TO CHECK THE ACCOUNTS. THESE PERSONS USED TO HEAR THE ARGUMENTS OF THOSE WHO KEPT TH ACCOUNTS AND EVIDENCE OF THOSE INVOLVED IN THE BARTER TRANSACTIONS. THIS IS THE BASIS OF NOMENCLATURE OF THE WORD AUDIT. IT IS DERIVED FROM LATIN WORD “AUDIRE” THAT MEANS TO HEAR.

DEFINITIONS

ACCORDING TOL.R.DICKSEE

                                                                     

                                                                      AN AUDIT IS AN EXAMINATION OF ACCOUNTING

                                                                RECORD UNDERTAKEN WITH VIEW TO ESTABLISH

                                                              WHETHER THEY COMPLETELY AND CORRECTLY 

                                                               REFLECT THE TRANSACTIONS TO WHICH THEY

                                                               PURPORT TO RELATE”

ACCORDING TO HANSON

                                                                     

                                                             AN AUDIT IS AN EXAMINATION OF SUCH RECORDS TO

                                                              THEIR RELIABILITY AND THE RELIABILITY OF STATEMENT

                                                              DRAWN FROM THEM”

TWENTIETH CENTURY DICTIONARY

                                                            “AN EXAMINATION OF ACCOUNTS BY ONE OR SOME DUTY

                                                             AUTHORIZED PERSON TO EXAMINE AND VERIFY BY     

                                                            REFERENCE TO VOUCHERS”

INTERNATIONAL AUDITING PRACTICES COMMITTEE

                                                             AN AUDIT IS AN INDEPENDENT EXAMINATION OF  

                                                              FINANCIAL INFORMATION OF AN ENTITY, WHETHER

                                                              PROFIT ORIENTED OR NOT, AND IRRESPECTIVE OF ITS

                                                             SIZE OR LEGAL FORM, WHEN SUCH AN EXAMINATION

                                                            IS CONDUCTED WITH A VIEW TO EXPRESSING AN

                                                            OPINION THEREON”

OBJECTIVES

  1. FARINESS OF STATEMEN:

                                                           THE MAIN OBJECT OF AUDIT TO PROTECT THE FINANCIAL STATEMENT FROM ERRORS AMND FRAUDS.BECAUSE THY FINANCIAL

STATEMENT IS ONLY THE STATEMENT WHICH SHOW TURE OR FAIRNESS POSITION

OF THE BUSINESS.                                     

2 INDEPENDENT OPINION:

                                                 THE PURPOSE OF AUDIT TO EXPRESS ON INDEPENDENT OPINION.THE AUDITOR MUST BE HONEST AND HARD WORKER.

       3 PRESCRIBED LAWS:

                                        THE PURPOSE OF AUDIT IS TO EXAMINE THE ACCOUNTING POLICIES FOR THE PREPARATION OF ACCOUNTING RECORDS.

4 ACCOUNTING POLICIES:

                                                     THE PURPOSE OF AUDIT IS TO EXAMINE THE ACCONTING

POLICIES FOR THE PREPARATION OF ACCOUNTING RECORDS.

SECONDARY OBJECTS

   

1 DETECTION OF ERRORS:

                                                             THE PURPOSE OF AUDIT IS TO DETECT THE ERRORS.THE AUDITOR CAN USE VARIOUS WAYS AND MEANS TO FIND OUT ERROR IN ACCOUNTING RECORDS.ERRORS HAVE FOLLOWING TWO TYPES.

  • CLERICAL ERRORS
  • PRINCIPAL ERRORS

      FIRST WE DISCUSS ABOUT CLERICAL ERRORS. CLERICAL ERRORS HAVE A FOLLOWING TYPES.

CLERICAL ERRORS

  1. ERROR OF OMMISSION:

                                                              THESE OCCUR WHERE THE TRANSACTION HAVE BEEN EITHER OMITTED PARTLY OR TOTALLY. A VIGILANT INDIVIDUAL (AUDITOR) AND CRITICAL SCURUTINY OF THE ACCOUNT ONLY CAN UNCOVER SUCH ERRORS.

  1. ERROR OF COMMISSION:

                                                                 THESE COSIST OF INCORRECT ADDITIONS, WRONG POSTING AND ENTRIES IN THE BOOKS OF ORIGINAL ENTRY OR IN THE LEDGER.

 

  1. COMPENSATING ERRORS:

                                                                    WHEN THE SECOND ERROR CANCLES THE EFFECT OF THE FIRST ERROR. FOR EXAMPLE OVERCASTING OF AN ACCOUNT BY RS.1000 MAY BE COORRECT THE BALANCE BY UNDERCASTIING OF ANOTHER ACCOUNT TO THE SAME EXTENT.

Iv        TRIAL BALANCE ERROR:

                                                               THESE ERRORS INCLUDES OMMISSION OF A BALANCE WHILE EXTRACING BALANCE FROM THE BOOKS OF ACCOUNTS OR ENTERING AN AMOUNT INCORRECTLY OR ON THE WRONG SIDE.

PRINCIPLE ERRORS

  1. INCORRECT ALLOCATION:

                                                             THIS IS OCCUR WHEN CAPITAL ACCOUNT IS CHARED INSTEAD OF A REVENUE ACCOUNT OR IN REVENUE MANNER.

  1. INCORRECT VALUATION OF ASSETS:

                                                                                  THERE IS NO PROVISION FOR BAD DEBTS AND DEPRECIATION IS ESTABLISHED.THE DIFFERENT TYPES OF ASSETS OF A COMPANY ARE NOT VALUED IN ACCORDANCE WITH THE LEGAL REQUIREMENT.

  1. OMMISSION OF OUTSTANDING AND PREPAID ITEMS:

                                                                                                                 THAT IS THE PROPER ADJUSTMENT OF THESE ITEMS IS NOT MADE IN THE BOOKS OF ACCOUNTS.

  1. DETECTION OF FRAUD:

                                                   THE PURPOSE OF AUDIT IS TO DETECT THE FRAUD AS WELL.THE VARIOUS TYPES OF FRAUDS MAY BE DETECTED BY AUDIT.

FRAUD HAVE A FOLLOWING TYPES.

  1. FRAUD OF CASH:

                                          ITS MEANS THE MISAPPROPRIATION OF CASH BY DISHONEST EMPLOYEES CONCEALED EITHER BY OMITTING TO ENTER RECEIPTS OR ENTERING FICTITIOUS PAYMENTS.

                                                                         THER ARE TWO METHODS BY WHICH MISAPPROPRIATION OF MONEY MAY BE CONCEALED BY DISHONEST EMPLOYEES.

  • UNDERSTANDING OF CASH RECEIVED.
  • OVERSTATEMENT OF CASH PAID.
  1. FRAUD OF GOODS:

                                                                   GOODS ARE MISAPPROPRIATED BY EITHER STEALING          

              THEM OR BY USING THEM PERSONAL BENEFITS.THEFT OF GOODS IS FOUND VERY              

              COMMON AMONG THE EMPLOYEES, WHERE INTEND CONTROL OVER THE STOCK

               IS VERY POOR AND PARTICULARLY WHERE THE GOODS AREOF LESS WEIGHT BUT

               MORE IN VALUABLE.

                                                        THERE ARE THREE METHODS BY WHICH

               DISHONEST EMPLOYEES MAY CONCEAL MISAPPROPRIATION OF GOODS.

  • UNDERSTANDING OF GOODS RECEIVED
  • OVERSTANDING OF MATRIAL ISSUED
  • TAKING LESS BALANCE OF AVAILABLE STOCK.
  • FRAUD OF ACCOUNTS:

                                                     FALSE REPRESENTATION OF ACCOUNTS IS ANOTHER FRAUD WHICH IS COMMITTED BY EMPLOYEES HANDLIMG THE ACCOUNTING FUNCTION.THIS TYPE OF FRAUD USUALLY COMMITTED BY DIRECTORS AND MANAGEMENT OF THE BUINESS.THIS KIND OF FRAUD MAY BE TAKE PALCE IN FOLLOWING MANNER.

  • INFLATION OF SALES
  • INFLATION OF PURCHASE
  • DEFLATION OF SALES
  • DEFLATION OF PURCHASE

        

 

  1. 3. PREVENTION OF ERRORS:

                                                          THE MAIN PURPOSE OF AUDIT IS TO PREVENT THE ERRORS.THE ERRORS CAN BE PREVENTED THROUTH EFFECTIVE INTERNAL CHECK.

  1. 4. PREVENTION OF FRAUD:

                                                     THE PURPOSE OF AUDIT IS TO PREVENT FRAUD.THE EFFECTIVE INTERNAL CHECK IS A USEFUL TOOL PREVENTS FRAUD.

SPECIAL OBJECTS

  • TAX AUDIT
  • COST AUDIT
  • OPREATION AUDIT
  • BID OFFER

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