Know Audit

An official inspection of an entity accounts, typically by an independent body i.e,Auditor

Check some points About an Audit:-

·        an investigation or a Search for evidence 

·        to enable reasonable assurance to be given

·        on the truth and fairness of financial and other information

·        by a person or persons independent of the preparer and

·        (of) persons likely to gain directly from the use of the information,

·        and the issue of a report on that information

·        with the intention of increasing its credibility and therefore its usefulness.

Objectives of an Audit 

The objective of an audit while doing auditing of entity is to express an opinion on statements, to give the opinion about the financial statements whether it is showing true & fair view, the auditor examines the financial statements to satisfy himself about the truth and fairness of the financial position of the entity, continuity of the entity in the future, and operating results of the enterprise and issue a clear report.

 

2 Major Audit Objectives to look into 

The objectives of the audit while auditing can be categorized into

1.     primary objectives 

2.     subsidiary objectives.

Primary Objectives of Audit

The main objectives of the audit that auditor have to keep in mind while auditing is  the primary objectives of the audit. 

They are as follows:-

1.       Examining the system of internal check of the entity.

2.       Checking arithmetical accuracy of books of accounts, verifying posting, casting, balancing the books of accounts.

3.       Verifying the authenticity and validity of transactions done by the client.

4.       Checking the proper distinction between capital and revenue nature of transactions, whether properly booked or not.

5.    Assure himself of the existence and value of assets and liabilities.

Verifying whether all the statutory requirements are fulfilled or not in the respective financial period.

Checking true and fair operating results presented by income statement and financial position presented by the balance sheet of the entity.

Subsidiary Objectives of Audit

These are such objectives that are set up to help in to complete primary objectives.

They are as follows:-

First & Foremost - Detection and prevention of errors 

Errors are those mistakes that are committed due to carelessness or negligence or lack of knowledge of the concerned person or without having a vested interest.

Errors may be committed without or with any vested interest by the entity or employee of entity.

So, they are to be checked carefully. Errors are of various types. Some of them are:

·         Errors of principle.

·         Errors of omission.

·         Errors of commission.

·         Compensating errors.

Detection and prevention of frauds

Frauds are those mistakes that are committed knowingly with some vested interest in the direction of top-level management of the entity.

Management commits frauds for so many reasons deceive tax, to show the effectiveness of management but in reality they are not, to get more commission, to sell a share in the market, to maintain good goodwill in market or to maintain the market price of the share, etc.

Detection of fraud is the main work/duty of an auditor. 

Such frauds are as follows:

·         Misappropriation of cash.

·         Misappropriation of goods.

·         Manipulation of accounts or falsification of accounts without any misappropriation.

Under-or over-valuation of stock

Normally such frauds are committed by the top-level person handling the management of entity or business. 

So, the explanation is given to the auditor also remains false whenever asked or provided by top-level management

So, an auditor should detect such fraud using skill, knowledge, and facts that are gain by doing audits of different clients.

Other objectives

·         To provide information to the income-tax authority.

·         To satisfies the provisions of the Companies Act.

·         To have a moral effect.

IMPORTANT - TO MAINTAIN CONFIDENTIALITY OF CLIENT INFORMATION

👉There are certain inherent limitations of audit examination that cannot decrease with an increase in audit procedure

It would not be possible for any type of Auditor who is doing an audit of the client to discover all errors and frauds that the entity has, in the financial statements due to the limitations of an auditor of his checking.