Auditing Basic Chapter 1

 

• Qualities of An Auditor

• Integrity - honest, sincere & straightforward
• Objectivity - Unbiased, impartial, impersonal
• Independence - decision making on own will
• Knowledge - of various laws, accounting standards and technical competence
• Communication Skills - to interact with various people he meets
• Tact - Clever to extract some info that is being concealed by the management or employee
• Judgment - on various occasions. Exp. Sample size
• Logical & Technical Skills - understand problems and to be handy in technical approach
• Confidentiality - Responsibility to keep the entity information secure
• Caution - show care in whatever he does

• Types of errors :

• As per nature

• Self revealing /non self revealing
• Intentional/Unintentional
• Concealing/Unconcealed
• Affected TB/Not affecting TB

• As Per Accounting Concept

• Error of principal
• Compensating Error
• Error of omission
• Error of commission

• Frauds :

• Without consent of owner:

• Embezzlement of Cash
• Embezzlement of Assets
• Embezzlement of Labour
• Embezzlement of Amenities
• Embezzlement of Goods

• With the consent of owner:

• Embezzlement of Accounts
• Window Dressing

• Objects Of Auditing :

• Primary

• Truthfulness    satyata
• Thoroughness  purdata
• Rule wise      niyamanukulta

• Secondary

• Detection & Prevention of Errors & Frauds ( to be dividend in 4 parts)
• Advice to the managers
• Moral effect on Employees
• Fulfillment of the order of Act
• To satisfy govt. Authorities
• Creation of healthy environment

• Social Objects

• Protection & Justice to investors
• Protection against evasion of tax
• Protection from Capital erosion
• Fair wages for labourer
• Reasonable Prices for the consumers
• Evaluation of social cost and benefit

• Advantages & Importance of Audit

• General Advantages

• Knowledge Of Accounting Errors
• Helpful In Maintaining Discipline
• Knowledge Of True Economic Position of the business
• Increase In Efficiency
• Protection To Investors
• End of Corruption
• Certificate to Truth and Honesty
• Procurement Of Precious Suggestions
• Audited Accounts are more Reliable
• Easy to sell business
• Helpful at the time of insolvency
• Helpful in Dividend and Bonus Planning
• Helpful in Assessment of Tax
• Increase in Goodwill
• Comparative Study of the Firm
• Compensation of Incidental Loss

• Advantages to Sole Traders

• Proof in the court of Law
• Determination of Tax Liability
• Helpful in making partner
• Confidence in employees

• Advantages to Partnership Business

• Helpful in Admitting new partner
• Determining Tax Liability
• Confidence to the sleeping partner
• Advantages at the Time of Death or retirement of a partner
• Confidence among the partners

• Advantages to the Company

• Confidence among shareholders + various advantages

• To the trusts & cooperative societies
• To the nation
• To other parties

• Limitations of Auditing

• Auditing is not the full proof of the honesty of the employees
• Not possible To see the petty matters
• Auditing Cannot give cent percent Guarantee of the Accuracy
• Not possible to locate all the misappropriations
• An Auditor just gives his opinion
• Influenced by others
• Lack of Independence
• Faulty External Evidence

Q. Auditing Vs Accounting

Q. Auditing vs Investigation

Q. Accountancy is a necessity while Auditing is Luxury