Auditing

DEFINITION

The term auditing has been defined by different authorities.

Spicer and Pegler: "Auditing is such an examination of books of accounts and vouchers of business, as will enable the auditors to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and that the profit and loss account gives true and fair view of the profit/loss for the financial period, according to the best of information and explanation given to him and as shown by the books; and if not, in what respect he is not satisfied."

FEATURES OF AUDITING :

a. Audit is a systematic and scientific examination of the books of accounts of a business;

b. Audit is undertaken by an independent person or body of persons who are duly qualified for the job.

c. Audit is a verification of the results shown by the profit and loss

account and the state of affairs as shown by the balance sheet.

d. Audit is a critical review of the system of accounting and internal

control.

e. Audit is done with the help of vouchers, documents, information and

explanations received from the authorities.

f. The auditor has to satisfy himself with the authenticity of the financial

statements and report that they exhibit a true and fair view of the state of affairs of the concern.

g. The auditor has to inspect, compare, check, review, scrutinize the

vouchers supporting the transactions and examine correspondence, minute books of share holders, directors, Memorandum of Association and Articles of association etc., in order to establish correctness of the books of accounts.

OBJECTIVES OF AUDITING

There are two main objectives of auditing. The primary objective and the secondary or incidental objective.

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...