Auditing

Auditing for Managers

Need of auditing

Advantages and limitations, type of audit, scope of audit

Advantages

1. Judges the correctness of financial statements

2. Detect Errors and Mistakes

3. Prevent Errors and Frauds

4. Benefits through specified audits

Manager can get the service of auditor in doing what beyond his capacity and ability

Judges the correctness of the financial statements

Independent opinion on accounts (true and fair view)

Reliability on financial statements and supporting documents

Defalcations

Assessment of the degree of adequacy and efficiency of the internal control

Evaluation of the accounting system in use

Detect and prevent errors and mistakes

i. Clerical errors

Errors of omission

Errors of commission

Compensatory errors

Errors of duplication

Trial Balance errors

ii. Errors of principle

Incorrect allocation (capital and income expenditures)

Omission of outstanding assets and liabilities

Incorrect valuation of assets

Inadequate provision for depreciation

Wrong provision for bad and doubtful debts

Overvaluation or undervaluation of closing stock

iii. Locate errors

(Only if the agreement says that auditor has to locate errors)

Trial Balance checking

Short cut method

Extensive checking

Note; Check casts of TB lists of debtors and creditors

Establish the amount of difference

Personal and impersonal ledger

Closing balances

Try to locate the error by getting half of the difference of trial balance columns. If the difference is divisible by nine it may mean an error of transposition of figures

If the difference is round figure look for total difference or carry forward balances

3. Detect and Prevent frauds and

i. Misappropriation and defalcation...