AUDITING

Definition:Critical examination of completed books of accounts by chartered accountant is called auditing.

2nd Definition:The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and for energy conservation.

NEEDS OF AUDITING:The needs of conduct of auditing arises on account of following reasons:1-

Protection against miss use of funds ar capital invested in business. Detection or discovery of various types of error such as i. a) errors of commission b) errors of omission Commencement of frauds or miss appropriation of funds or defaultation of accounts. Checking of all books of accounts a. Books of original entries or special journal. b. Books of final entries and ledgers. c. Debter ledger and creditor ledger. d. Complete checking of all financial statements like cost of good sold statements, profit and loss accounts, balance sheets etc.

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Statements of return earnings, funds flow statements and statements of finding out surplus or deficit budget. Physical verification of all fixed assets. Checking of valuation of fixed assets and long term liabilities. Ascertaining:- whether the proper system of accounting and also principle of accounting followed or not. Preparation of audit report by chartered accountant for: a) Top management and CEO of the firm. b) All parties who are involved in the financial assets of the organization.

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MAIN PRINCIPLE OF AUDITING:12345Principle of physical verification of fixed assets. Principle of valuation of fixed assets. Principle of distinction between capital expenditures and revenue expenditures. Principle of discovering of various types of errors commenced by the account department. Principle of checking of all the books of accounts on the basis of documents.

IMPORTANCE OF AUDITING:1If the audit of the completed books of accounts is not carried out, then the irregularities arises, errors of commission and errors of omission and difference between capital expenses and revenue expenses is dated incorrect of company. Non audited financial statements will give incorrect or miss leading results in shape of wrong gross profit and wrong financial position of the business. The physical variation of fixed assets is not altered if audit is not taken. Valuation of fixed assets and long term liabilities are checked incorrect if the audit is not carried out. With the help of auditing the system of firm gives correct result and performances of business.

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MAIN OBJECTIVES OF CONDUCT OF AUDITING:The main objectives of conduct of auditing are as under:1234567Critical examination of completed books of accounts whether they are correct or not. Detect or discovery of all types of irregularities commenced by book keeper or other employees in accounts department. Maintenance/ completation of goods of accounts normally. Checking of physical verification of all fixed assets. Correct value of assets in liability shown on balanced sheets. Check or examine whether the results produces or shown in the financial accounts are correct or not. Ultimate object of conduct of audit is the preparation of audit by chartered accountant for the presentation of annual sales occasion as well as the top managements and other influetives parties.

LIMITATIONS OF AUDIT
The followings are the limitation of the audit:1-

The job of auditor is the checking of completed accounts such as financial statements, ledger and other books of accounts including general journal, special ledger. The auditor should not interferes unnecessarily with the decision of top managements. The auditor has nothing to do with right/wrong decision of the management. The main job of the auditor is the detection of frauds and miss appropriation of funds and various types of errors of commission and errors of omission, in other words it is the duty of auditor to protect the capital invested by shareholder of the company. It is none of the duties of management as well as the auditor to interferes in each others works. For examples:- it is duty of managements to know whether the working capital is too large and too short. And it is duty of auditor is to operates the steps whether the working capital is available or not. It is not duty of auditor to comment that the working capital is too long or too short. It is the duty of managements to declares the amount of profit as dividend to the shareholders of the company. Both the parties, the managements is on one hand and the auditor is on another hand should perform reported duties as per as scope of responsibilities given to them. The above are the important limitation of auditor.

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