The nature and purpose of auditing

Presentation on Auditing

1. Assigned by: The Nature and Purpose of Auditing SIR ATTA HUSSAIN Presented by : Kashif laghari

2. Origin of Word “Audit” The word ‘audit’ is derived from the Latin word “ audire ” which means to hear. In the good old days whenever the proprietors of a concern suspected a fraud, certain people were appointed to hear verbal evidence of transactions of barter etc., and to judge the facts. They ‘heard’ the points of view of those who maintained the accounts.

3. Definition of “Audit” Auditing Means, the verification of accounting and financial records with a view to determine accuracy and reliability

4. Objective of An Audit Primary/Main Objective Expression of Expert Opinion Secondary Objective Detection and prevention of Errors Fraud Specific Objective of Audit

5. Primary or Main Objective The main objective of auditing is to verify the accounts and records and to report to the owners of the business whether the profit and loss account and the Balance sheet have been properly drawn up according to the requirements of law, and whether they exhibit a true and fair view of the profit and the financial position of the business

6. Secondary Objective Detection of and Prevention of Errors Clerical Errors Errors of Principle Error of Omission Error of Commission Error of Compensating Error of Duplication (A)

7. Detection of and Prevention of Frauds Misappropriation of Cash Misappropriation of Goods Manipulation of Accounts (B) Secondary Objective

8. Difference Between Auditing and Accounting Points of difference Accountancy Auditing 1. Scope The scope of accountancy is limited to the preparation of financial statements . In, auditing, the auditor is concerned with the checking of accounts. 2. Objective The objective of accountancy is to know the financial result and the financial position. The objective of auditing is to verify the truth and fairness of the accounts. 3.Status An accountant is the employee of an organization. An auditor is an independent outsider. 4.Qualificaiton Accounting work requires no formal qualification. To be the company auditor, one should be the qualified chartered accountant .

9. Difference Between Auditing and Accounting Points of difference Accountancy Auditing 5. Time period of work Accounting work is carried out throughout the year. Auditing is usually carried out at the end of year. 6. Tenure of Service Accountant is permanent employee of the organization. Auditor can be changed from year to year. 7. Accountability The accountant is accountable to the management. The auditor is accountable to the shareholders.