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INTRODUCTION TO AUDIT

After studying the unit the students will be able to

DEFINE AUDITING & EXPLAIN THE OBJECT OF AUDITING?

An audit is an evaluation of an organization, system, process, project or product. It is performed

by a competent, independent, objective, and unbiased person or persons, known as auditors. The

purpose is to verify that the subject of the audit was completed or operates according to

approved and accepted standards, statutes, regulations, or practices. It also evaluates controls to

determine if conformance will continue, and recommends necessary changes in policies,

procedures or controls

A.W.Hanson

An audit is an examination of such records to establish their reliability and the reliability of

statement drawn from them.

MontgomeryAuditing is a systematic examination of the books and records of a business or other

organization, in order to ascertain or verify and report upon the facts regarding its financial

operation and the result thereof.

Lawrence.R.Dicksee

An audit is an examination of records undertaken with a view to establishing whether they

correctly and completely reflect the transactions to which they relate. In some circumstances it

may be necessary to ascertain whether the transactions are supported by authority.

OBJECT OF AUDITING:From the point of view of convenience the objectives of auditing can be divided into two

categories

A. Primary objective as per Section 227 of the Companies Act 1956, the primary duty(objective) of the auditor is to report to the owners whether the balance sheet gives a true

and fair view of the Companys state of affairs and the profit and loss A/c gives a correct

figure of profit of loss for the financial year.

B. Secondary objective it is also called the incidental objective as it is incidental to thesatisfaction of the main objective. The incidental objective of auditing are:

i. Detection and prevention of Frauds: Fraud refers to intentional misrepresentation offinancial information with the intention to deceive. Frauds can take place in the form of

manipulation of accounts, misappropriation of cash and misappropriation of goods. It is

of great importance for the auditor to detect any frauds, and prevent their recurrence.

ii. Detection and prevention of Errors: Errors refer to unintentional mistake in thefinancial information arising on account of ignorance of accounting principles i.e.

principle errors, or error arising out of negligence of accounting staff i.e. Clerical errors.

Detection of material frauds and errors as an incidental objective of independent financial

auditing flows from the main objective of determining whether or not the financial statements

give a true and fair view.

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