auditing is a specialized function having complex legal, economic and ethical implications, The auditors examine and report

on economic information about organizations where millions ol people have a stake. Auditors now enjoy a distinctive proteseiertal status in a modern society The practice of auditing accounts is as old as human civilization. ln earlymdays, audit was mainly undertaken for state or public accounts. Modern auditing practices originated with the introduction of large scale production processes\ tolrowing the industrial Revolution during 18th century, andvdeveloped along with the development of trade commerce and industries. The development of joint stock organisation widened scope of investment and business activities under the cornpany form of organisation, the shareholders delegate authority ot management to the Ecard ct Directors elected by them and they are interested in the safetyvotnvestments. They are also interested in finding out real financial position of the company. Hence it became necessary to audit accounts of the joint stock companies for assuring the shareholders that their investments are sale and the accounts are accurate and reliable. introduction of double entry book keeping system increased complications in the accounting system. Hencehin order to have effective check on the accounts ofthe company, a custom was developed to appoint a professional auditor to see that the audit can be done properly and the investors can put full confidence in the audit repor1s.Thus audit implies a written report about the accuracy and reliability of accounts by a qualified auditors. The Indian Companies Act had made it compulsory for ail the registered companies to get their accounts audited by qualified professional accountants. Under section 233 - B of the companies Act 1956, the central government has been empowered to order compulsory cost audit in case of some specified companies. ln 1985 the Reserve Bank of lncha through a circular have directed all the commercial banks to ask their borrowers to get their accounts audited. Even the Income Tax Act since 1984 provided for the compulsory audit of accounts ol certain assesses. Thus the scope of traditional auoit has been widened beyond financial audit and now auditors are appointed to conduct tax audit, cost audit, management audit, Operational audit as well asm social audit. Meaning of Audit: The term audit has been derived from Latin word "ai dire" which means to hear. Audit has been defined as follows. 1) Montgomery has defined auditing as a systematic examination of the books and records of a business or other orrYEan7n`ev@@iigr ;;t uporLthe@@Eingthe financlaliopgationsanggil _ V" i"`T i Ti 2) According to Spicer and Peglar, suchjirtiexamination ofthe books,hacE%r_ and \LQui3Ers'oE'BGin'essinas snail enable the auditor to sa5y_Vn@U ; whetheror notthgalancesheet is properly drawn up, so as_to_e>5nibi_t a true ~ and correctview ofthe state of affairs of the business, according to_thebes_tot his inlormationrand explanation given to him and as shown by the books, and if not, inyvhat respect it is untrue or incorrect' Thus auditing is the process of systematic and scientific examination of the accounts ofa business. An auditor not only examines entries in the books of accounts or numerical accuracy ofthe books but also finds out whethertransactions entered in.the books of original entry are correct or not. u 4' ` __,_

The institute of chartered Accountants ol India has defined modern auditing as a systematic and independent examination ol data, statements, records, operations and performance (financial and other wise) of an enterprise for a stated r i l i l i pose," Sclrlosssr stated that "auditing is a systematic examination of ttn;tr.ci\xl statements, records and related operations to determine adherence to generally accepted accounting principles, rnanagerrrent policies or stated requirements. Acr:ountancyV Auditing Accountancy is a work ol accountant and is confined to the waiting and balancing ol financial books checking otnumerical accuracy of the books ol accounts. extraction ol agreed trial balance, preparation oi the trading account, prottt and loss account, and balance sheet in such a way that one can get clearly an essence ot the state ot allairs ol the business, Auditing involves a detailed and critical examination and verification ot these ccounts by an independent accountarrt lor the purpose of ascertaining the fitniris ot a concern. Ttrtis auditing does not deal with the preparation ot account. But denotes something much wider as it includes the examination ol those accounts and the subsequent submission ol a report there onf' (B) Objective of an Audit :~ Objectives of an audit may be discussed as priman/ obrective and secorrizary objectives() l Theiprima obective oi an audit is to examine the books ot account, vouchers and other appropriate records and establish t.tat, the balance sheet, at a given data _ is properly drawn upr so as to exhibit a true and lair view ol the state ol frltairs ot the business and U19 protit and loss account also discloses a true and lzirr view ol proltt or loss lor the financial period ending at that date.Thus the obiective ot an audit financial statements, prepared within a lramework of recognized accounting policies and practices and relevant statutary requirements il any, is to enable an auditor to express an opinion on such financial statement. The auditor's opinion helps in determination of true and lair view ol the financial position and operating resutts oi an organization. , Suosidiary objectives include the lollowing

a) Detection and Prevention of errors especially Clerical errors which include (ii errors ot omission, (ir) errors ol commission (iii) compensating errors and (iv) errors ol duplication _ D) Errors of principlesDetection of these frauds needs careful and searching enqutries as they are amrnttted by responsible oflicers.Thus the primary function of an auditor is not rn rscover frauds and irregularities unless he is specifically appointed for detecting l'1|catrons_ * (C iAdvantages of Auditing :- Auditing is very useful activity for the organization or account of its several dvantages as stated below. Audited accounts are readily accepted as a correct and authentic record of the financial transactions It helps is detecting and rectifying errors and frauds , It has a great moral influence on the client s staff that helps in preventing frauds and errors to keep books of accounts up to date. An auditor has a practical knowledge of business finance, taxation laws, contract act, etc legal and financial matters. Hence he can advise his clients on these matter-which is advantageous to the clients, ' ln case of a joint stock company, an auditor acts like a trustee of the share holders and hence protects their interests. _ Auditied accounts have more reliability lor the purpose ol taxation, raising loans etc. 4 For the purpose of claiming reasonable compensation from the insurance company in case of loss by fire etc, audited accounts are helpful. Audited accounts are useful in settlement of accounts between partners at the time of retirement or death of a partner, lt helps in comparision between the accounts of the current year with other years, g V Y . Audited accounts are useful for extension of credit , admitting a parrrer, selling a business or converting it into a company etc.

lt helps in carrying out appraisal function effectively through-audit reviews and operation of various controls in the organization for detecting \.treakr=esses and deficiencies in them. Auditing process is useful in protecting interests of owners, creditors, employees, investorsgetc, _ Audit Function as Control Tool :The institute of Chartered Accountants of India, in the statement on auditing nractices has stated that, The study of sale guarding the assets of a company is wrrmariiy that of the management and the auditor is entitle to rely on the safeguardsnd internal controls instituted by the management , although he will ol course 1til<e;r;to account any deficiencies he may note there in while drafting his audit programme. internal audit is a review ot operations and records undertaken within a business by specially assigned stall. lt is a post transaction review to evaluate correctness of records and the effectiveness of operations on a continuous basis in ariorganlzation by its own staff. The term internal audit may be defined as, The independent appraisal of activity within an organization for the review of accounting, financial and other business practices as a proactive andconstructive arm ol management, lt is a type of control which functions by measuring and evaluating the effectiveness of other types ot controls, lt deals primarily with accounting and financiat matters, but it may also properly deal with matters of an operating naturef In the past the purpose of internal audit was believed to be ensuring that the accounting and alliedlrecords are property maintained and that the assets of the enterprise are properly safeguarded and the policies and proceduresrlaid down bythe management are properly complied with, But the modern view, emphasizes that, internal audit need not be concerned only with financial transactions and its scope may include the task ol reviewing whether the resource utilization of the organization is efficient and economical. Thus, it implies that the review of all the

operations of the organization and also to ascertain the effectiveness ol management. The internal auditor should be independent so as to discharge his functions elliciently and effectively. ~ -