Auditing in General-meaning,objectives,advantages,limitations

audit

1. Auditing in General 1.MEANING 2.OBJECTIVES 3.IMPORTANCE 4.ADVANTAGES AND LIMITATIONS

2. MEANING Auditing is an examination of the accounting books and the relative documentary evidence so that an auditor may be able to find out the accuracy of figures and may be able to make report on the balance sheet and other financial statements which have been prepared from there.

3. DEFINITION According to R. K. Moutz , "Auditing is concerned with the verification of accounting data with determining the accuracy and reliability of accounting statement and record."

4. OBJECTIVES Primary O bjectives of audit: i . Examining the system of internal check. ii. Checking arithmetical accuracy of books of accounts, verifying posting, costing, balancing etc iii. Verifying the authenticity and validity of transactions. iv. Checking the proper distinction of capital and revenue nature of transactions. v. Confirming the existence and value of assets and liabilities. vi. Verifying whether all the statutory requirements are fulfilled or not. vii. Proving true and fairness of operating results presented by income statement and financial position presented by balance sheet.

5. OBJECTIVES Subsidiary Objectives of Audit Detection and prevention of errors Detection and prevention of frauds Under or over valuation of stock

6. ADVANTAGES Verification Of Books And Statement :- The main object of audit is the verification of the books and the financial statements of the company concerned. Discover and Prevention Of Error :- While examining the books, auditors detect some errors. These are various kinds of errors. So audit is very useful in preventing and detecting the errors.

7. ADVANTAGES Discovery and Prevention Of Fraud :- Fraud means false representation made intentionally with a view to defraud somebody. It is the duty of the auditor that he should detect the fraud. Protects The Interest Of Share Holder :- Audit protect the interest of shareholders in the case of joint stock company. Through audit shareholders are assured that the accounts of the company are maintained properly and their interest will not suffer.  

8. ADVANTAGES Proper Supervision :- Sometimes owner of the business can not look after the business personally. Audit acts as a check on employees and it saves the owner from losses. Loan Facility :- If accounts are audited, then true picture will be known to the financial institutions and they will never hesitate to lend the money.

9. LIMITATIONS Use of Professional Judgment Audit involves the use of judgment in the identification of audit risks, selection of appropriate auditing procedures and the interpretation of audit evidence. Although auditing standards provide guidelines to assist auditors in forming sound professional judgments, it is inevitable that an auditor may at times misjudge a situation which may cause the auditor to overlook a misstatement in the financial statement.

10. LIMITATIONS Use of Sampling Auditors apply sampling techniques to limit the number of transactions and balances selected for audit testing in order to perform the audit efficiently and cost effectively. The results derived from the selected transactions and balances may not however be representative of the entire population. There is therefore an inherent risk that the audit procedures may fail to detect a material misstatement in the financial statements due to the inability of auditors to perform detailed testing of the entire population of transactions and balances.

11. LIMITATIONS Management Representations Generally, external evidence is considered to be a more reliable form of audit evidence than internal evidence produced by the management. Although auditors collect audit evidence from a range of sources, too often they have to rely on the representations of management in order to assess the reasonableness of the matters concerning financial statements.  

12. LIMITATIONS Time Constraints In practice, auditors face strict time constraints within which they have to provide their opinion on the financial statements. Auditors tend to prioritize tasks that are essential for the effective performance of the audit.

13. LIMITATIONS Independence Threats Whereas the ethical guidelines issued by IFAC and other professional bodies attempt to minimize the instances of loss of objectivity of auditors, certain level of conflicts of interest are inevitable in practice.