Objectives of auditing

The word, ‘Audit’ is derived from the Latin term “audire” which means to hear. Audit is a thorough review of a department’s records and reports, in order to verify that assets and liabilities are properly recorded on the balance sheet and all profits and losses are properly assessed. To meet the objectives of Audit, verification of revenue, expenditure, bank deposits, bank reconciliations, accounts payable and accounts receivable, cash, loans and advances, disbursement and regular transactions is very necessary.
A. Primary Objectives of Audit
B. Subsidiary Objectives of Audit
A. Primary Objectives of Audit
The main objectives of Audit are known as primary objectives of Audit. They are as follows:
 
Checking arithmetical accuracy of books of accounts, verifying posting, costing, balancing etc.
Verifying the authenticity and validity of transactions.
Checking the proper distinction of capital and revenue nature of transactions.
Confirming the existence and value of assets and liabilities.
Verifying whether all the statutory requirements are fulfilled or not.
Proving true and fairness of operating results presented by income statement and financial position presented by balance sheet.
A. Primary Objectives of Audit
The main objectives of Audit are known as primary objectives of Audit. They are as follows:
 
Checking arithmetical accuracy of books of accounts, verifying posting, costing, balancing etc.
Verifying the authenticity and validity of transactions.
Checking the proper distinction of capital and revenue nature of transactions.
Confirming the existence and value of assets and liabilities.
Verifying whether all the statutory requirements are fulfilled or not.
Proving true and fairness of operating results presented by income statement and financial position presented by balance sheet.
B. Subsidiary Objectives of Audit:-
Detection and prevention of errors:
Errors of principle
Errors of omission
Errors of commission
Compensating errors
Errors of Duplication

1. Objectives of Auditing KULBIR SINGH Asst. Prof.

2. Introduction The word, ‘Audit’ is derived from the Latin term “audire” which means to hear. Audit is a thorough review of a department’s records and reports, in order to verify that assets and liabilities are properly recorded on the balance sheet and all profits and losses are properly assessed. To meet the objectives of Audit, verification of revenue, expenditure, bank deposits, bank reconciliations, accounts payable and accounts receivable, cash, loans and advances, disbursement and regular transactions is very necessary.

3. Auditing refers to a systematic and independent examination and verification of books, accounts, documents and vouchers of an organization to ascertain how far the financial statements present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly maintained by the concern as required by law.

4. Definitions of Auditing According to the ICAI , “Auditing is defined as a systematic and independent examination of data, statements, records, operations and (financial or otherwise) of an enterprise for a stated purpose. 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."

5. Objects of Auditing A . Primary Objectives of Audit B. Subsidiary Objectives of Audit

6. A. Primary Objectives of Audit The main objectives of Audit are known as primary objectives of Audit. They are as follows:   Checking arithmetical accuracy of books of accounts, verifying posting, costing, balancing etc. Verifying the authenticity and validity of transactions. Checking the proper distinction of capital and revenue nature of transactions. Confirming the existence and value of assets and liabilities. Verifying whether all the statutory requirements are fulfilled or not. Proving true and fairness of operating results presented by income statement and financial position presented by balance sheet.

7. B. Subsidiary Objectives of Audit:- Detection and prevention of errors: The majority of errors are those mistakes which are committed due to carelessness or negligence or lack of knowledge or without having vested interest. Errors may be committed without or with any vested interest. So, they are to be checked carefully. Following are the errors:- Errors of principle Errors of omission Errors of commission Compensating errors Errors of Duplication

8. Errors of principle Such errors occur due to lack of knowledge about the Accounting principles Such errors include wrong posting of entries Wrong valuation of assets, wrong allocation of income and capital Errors of omission When any transaction is completely omitted from being recorded in the primary books of accounts This will not affect the trial balance The entry doesn’t appear in the books of accounts Its very difficult to deduct such type of error

9. Errors of commission Such errors occur when a transaction is wholly or partially recorded in the wrong books of accounts This error include wrong entries, wrong balancing, wrong posting etc It is very difficult to deduct the error as the trial balance remains tallied Compensating errors When two or more error disappear the effect of each other. When the error in one account balance out an error in another account, then such error are referred to as compensatory errors. This type of error will be deducted only through in-depth examination by the Auditor Errors of Duplication Errors occur when the same transaction is entered twice in the books of accounts And same posted in the Ledger This type of error occurred due to the lack of knowledge and confusion of the clerk

10. The above mentioned errors can be deducted in the following way Checking the Totals of trial balance Finding the amount of difference by totaling the both sides Halving the amount of difference Checking of journal and ledger Checking of subsidiary books Checking the balance of ledger Checking the posting of subsidiary book like, purchase book, sales book etc Checking the opening entries Checking the allocation or division of capital income and revenue income.

11. ii. Detection and prevention of frauds Frauds are those mistakes which are committed intentionally and with the aim of harming the organization and with some vested interest on the direction of top level management. Mistakes and errors in the books of account which have been committed in a planned manner and with the view of deceiving others are known as frauds. Frauds always committed by intelligent and smart person.

12. Such frauds are as follows:- Misappropriation of cash Misappropriation of goods Manipulation of accounts or falsification of accounts without any misappropriation :

13. Misappropriation of cash Not recording cash sales in the books of accounts Not recording extraordinary receipt of cash in the books of accounts Making fictitious entries the customer account relating to discounts, returns, bad debts etc. Teeming and lading. Recording fictitious cash purchase Making false entries in the account book Making entries for false donation, charity. Making false bill or over amounted bill for purchased goods and other expenses Not recording discounts received from creditors

14. Misappropriation of goods Using the organization’s goods for personal purpose Stealing goods from the store Not entering the goods received as sales return Over issue of goods Removing certain goods on accounts of purchase return

15. Manipulation of accounts or falsification of accounts without any misappropriation : Provision of less depreciation on fixed assets Non provision of depreciation on fixed assets Over valuation or under valuation of fixed assets Providing inadequate provision for bad debts Not recording current year’s accrued expenses etc. Not included income in the books of accounts Creating secret reserves Recording revenue expenditure as capital expenditure

16. iii Under or over valuation of stock:- Normally such frauds are committed by the top level executives of the business. So, the explanation given to the Auditor also remains false. So, an Auditor should detect such frauds using skill, knowledge and proper examining the books of accounts and facts .

17. iv Other objectives:- To provide information to income tax authority To satisfy the provision of company Act To have moral effect on employees Prevention of frauds and errors

18. Thanks