Objectives of auditing

Objectives of Auditing and Assurance

1. C.ontent:ObjectivesofAuditing:https://youtu.be/7wKU3tDTs38?t=11
ObjectivesofAuditing
Theobjectiveofanauditistoexpressanopiniononfinancialstatements.
Theauditorhastoverifythefinancialstatementsandbooksofaccountstocertify
thetruthandfairnessofthefinancialpositionandoperatingresultsofthe
business.Therefore,theobjectivesofauditarecategorizedasprimaryor
mainobjectives
andsecondaryobjectives.
PrimaryObjectives
Theprimaryormainobjectiveofauditisasfollows:
To1.ExaminetheAccuracyoftheBooksofAccounts
Anauditorhastoexaminetheaccuracyofthebooksofaccounts,vouchers
and
otherrecordstocertifythatProfitandLossAccountdisclosesatrueandfairview
ofprofitorlossforthefinancialperiodandtheBalanceSheetonagivendateis
properlydrawnuptoexhibitatrueandfairviewofthestateofaffairsof
thebusiness.Thereforetheauditorshouldundertakethefollowingsteps:
Verifythearithmeticalaccuracyofthebooksofaccounts.
Verifytheexistenceandvalueofassetsandliabilitiesofthecompanies.
Verifywhetherallthestatutoryrequirementsonmaintainingthebookof
accountshasbeencompliedwith.
To2.ExpressOpiniononFinancialStatements
Afterverifyingtheaccuracyofthebooksofaccounts,theauditorshould
expresshisexpertopiniononthetruthnessandfairnessofthefinancial
statements.Finally,theauditorshouldcertifythattheProfitandLoss
AccountandBalanceSheetrepresentatrueandfairviewofthestateof
affairsofthecompanyforaparticularperiod.

2. Meaning of Financial Statement
Financial Statement means the statements prepared at the end of the year taking
into account the business activities that took place for a year, for example,
transactions that takes place in a business concern from 1st April to 31st March.
Components of Financial Statement
Financial Statement includes the following:
Trading and Profit and Loss Account, and
Balance Sheet.
Elements of Financial Statements include the following:
Assets: Assets include cash and bank balance, value of closing stock, debtors,
bills receivable, investments, fixed assets, prepaid expenses and accrued income.
Liabilities: Liabilities include capital, profit and loss balance, creditors, bills
payable, outstanding expenses and income received in advance.
Revenue:Revenueincludessales,collectionfromdebtors,rent
received,dividend,interestreceivedandotherincomesreceived.
Expenditure: Expenditureincludespurchases,paymentto
creditors,
manufacturingandtradeexpenses,officeexpenses,sellinganddistribution
expenses,interestanddividendpaid.
SecondaryObjectives
The secondary objectives of audit are: (1) Detection and Prevention of Errors, and
(2) Detection and Prevention of Frauds.
DetectionAndPreventionofErrors
TheInstituteofCharteredAccountantsofIndiadefinesanerroras,
“anunintentionalmistakeinthebooksofaccounts.” Errorsarethecarelessness
on

3. thepartofthepersonpreparingthebooksofaccountsorcommittingmistakesin
theprocessofkeepingaccountingrecords.Errorswhichtakeplaceinthebooks
ofaccountsandthedutyofanauditortolocatesucherrorsarediscussedbelow:
1. CLERICAL ERROR
Errorsthatarecommittedinposting,totallingandbalancingofaccountsarecalled
asClericalErrors.TheseerrorsmayormaynotaffecttheagreementoftheTrial
Balance.
TypesofClericalErrors:
(A)ErrorsofOmission:
Whenatransactionisnotrecordedorpartiallyrecordedinthebooksofaccountis
knownasErrorsofOmission.Usually,itarisesduetothemistakeofclerks.Error
ofomissioncanoccurduetocompleteomissionorpartialomission.
(1)ErrorofCompleteOmission:Whenatransactionistotallyorcompletely
omittedtoberecordedinthebooksitiscalledas“ErrorofCompleteOmission”.It
willnotaffecttheagreementoftheTrialBalanceandhenceitisdifficulttodetect
sucherrors.
(2)ErrorsofPartialOmission:Whenatransactionispartlyrecorded,itiscalled
as“ErrorofPartialOmission”.Suchkindoferrorscanbedetectedeasilyasitwill
affecttheagreementoftheTrialBalance.
B)ErrorsofCommission:
Errorswhicharenotsupposedtobecommittedordonebycarelessnessiscalledas
ErrorofCommission.Sucherrorsariseinthefollowingways:
(1)ErrorofRecording,
(2)ErrorofPosting,
(3)Errorofcasting,orErrorofCarry-forward.

4. (1)ErrorofRecording:Theerrorariseswhenanytransactionisincorrectly
recordedinthebooksoforiginalentry.ThiserrordoesnotaffecttheTrial
Balance.
(2)(2)ErrorofPosting:Theerrorariseswhenatransactionis
correctlyjournalisedbutwronglypostedinledgeraccount.
(3)(3)Errorofcasting,orErrorofCarry-forward:Theerrorariseswhena
mistakeiscommittedincarryingforwardatotalofonepageonthenext
page.ThiserroraffectstheTrialBalace.
ERROR 2. OF DUPLICATION
Errors of duplication arise when an entry in a book of original entry has been
made twice and has also been posted twice. These errors do not affect
the agreement of trial balance, hence it can’t located easily.
DetectionandPreventionofFrauds
Fraudistheintentionalorwilfulmisrepresentationoftransactionsinthebooks
ofaccountsbythedishonestemployeestodeceivesomebody.Thus
detectionandpreventionoffraudisofgreatimportanceandconstituents
animportantdutyofanauditor.Fraudcanbeclassifiedas:
1.MISAPPROPRIATION OF CASH
Thisisaverycommonmethodofmisappropriationofcashbythe
dishonestemployeesbygivingfalserepresentationinthebooksof
accountsintentionally.Inordertodetectandpreventmisappropriation,the
auditorshouldverifythesystem
ofinternalcheckinoperationandbymakingadetailedexaminationofrecords
and
documents.
2.MISAPPROPRIATION OF GOODS

5. FraudwhichtakesplacesinrespectofgoodsisMisappropriationofGoods.Sucha
typeoffraudisdifficulttodetectandusuallytakesplacewherethegoodsareless
bulkyandareofhighvalue.
Byshowinglessamountofpurchasethanactualpurchaseinthebooksof
accounts.
Byshowingissueofmaterialmorethanactualissuemade.
Byshowinggoodmaterialsasobsoleteorpoorlineofgoods.
Byshowingfictitiousentriesinthebooksofaccounts.
3. MANIPULATION OF ACCOUNTS
Thereisaverycommonpracticealmostineveryorganization,some
dishonestemployeeshaveintentiontocommitthistypeoffraud.Manipulationof
accountsistheproceduretoalterbooksofaccountsinsuchawaythatthere
willbeanincreaseordecreaseintheamountofprofittoachievesomepersonal
objectivesof
thehighofficials.Itisverydifficultfortheauditorstoidentifysuchfraudswhich
maybeduetomanipulationofaccounts.