Course Title: Auditing, Taxation and IT

Course Code: MIS-209

Auditing

Organization

Owner Management
Auditing is a systematic examination of an
organization's or individual's financial records by
professional accountants to verify their accuracy
and ensure they provide a true and fair view of
financial position. This process is crucial for
maintaining transparency in financial reporting
and providing stakeholders with reliable
information for decision-making.
Key Aspects of Auditing:
•Purpose:
•Audits ensure that financial statements accurately reflect an
organization's financial position, as disclosed by the income
statement, balance sheet, and cash flow statement.
•Process:
•Audits involve a systematic review of transactions, financial
statements, and accounting books.
•Types:
•Internal Audits: Conducted by the organization's own staff to
assess and improve internal controls and processes.
•External Audits: Performed by independent professional
accountants to provide an independent opinion on the financial
statements.
Key Aspects of Auditing:
Importance:
Audits help build investor confidence, reduce the risk of fraud, and
ensure compliance with legal and regulatory requirements.
Standards:
Auditing is governed by professional standards and regulations,
such as the International Standards on Auditing (ISAs) issued by
the IAASB (International Auditing and Assurance Standards
Board.), the Auditing Standards Boards (ASB) in the US, and ICAB
(Institute of Chartered Accountants of Bangladesh) in Bangladesh.
Outcomes:
Audits result in an audit report that expresses an opinion on the
fairness of the financial statements.
Auditing at a glance
At the end of the year owners and other users want
to know the overall financial picture, that’s why
org. or management prepares the financial
statement.
To justify the true and fairness of that statements,
shareholders are to give the appointment of the
auditor with duties; rights and powers.
The main objective of audit is to express expert
opinion on the financial statements for the users.
The second objective of the audit is to detect and
prevent errors and frauds.
 Continue
Auditor is to maintain audit program and note book.
Auditor ensures internal check and internal control
system; examines all the assets and liabilities for their
verification and valuation whether it is shown with the
true and fair view or not.
After proper examination & evaluation, auditor should
prepare a report which is called auditor’s report.
 Meaning of Audit
 The Word “audit” is derived from the Latin world
“audire” which means “to hear”. In olden times,
whenever the owners of a business suspected
fraud, they appointed certain (knowledgeable
man) persons to check the accounts.
 Audit is the independent, unbiased and intellectual
examination of financial information of any entity,
whether profit oriented or not, and irrespective of its
size or legal form, when such examination is
conducted with a view to expressing an expert opinion
thereon.
 Cont…..
 It is clear from the above definition that, Auditing
is the systematic and scientific examination of the
books of accounts and records of a business so as
to enable the auditor to satisfy himself that the
Balance Sheet and the Profit and Loss account are
properly drawn up which exhibits a true and fair
view of the financial statements.
 Needs of audit
Auditing is needed to add value to information by
increasing its reliability and credibility. Needs of
auditing can be specified such:

1. Judges the correctness of financial statements

2.Detection and prevention of Errors and Mistakes
3.Detection and prevention of Frauds
4.Benefits(gaining advantages or improvements)
through specified audits

Manager can get the service of auditor in doing

what beyond his capacity and ability.
 Scope of Auditing
Scope of Audit is so vast. Actually, it depends on the nature of
organization. There are many scope of Auditing. Which are
• Verification of arithmetical accuracy.
• Collection of information and evidence.
• Examination of documentary evidence.
• Review of internal check & control system.
• Examination of transactions, important statements.
• Verification of assets and liabilities.
• Judgment of social responsibilities and efficiency of
management.
• Report submission.
 Principles of Auditing:
 Integrity, Objectivity and Independence: In performing audit, the auditor
should be straight forward, honest, sincere and impartial in his approach in
line with professional obligation.
 Confidentiality: The auditor must maintain and ensure confidentiality of
information acquired in the course of his or her auditing. S/He must be
trustworthy.
 Skill and Competence: Auditors should have proper skill and competence.
The audit work should be done with due competence and professional attitude
failing which the objectives will be adversely affected.
 Work Performed by other: If the auditor uses work done by someone else,
they must make sure that the work is good enough and reliable for the audit.
 Planning and Organization: To make the audit effective, the work should be
properly planned and organized according to professional standards and the
audit’s scope.
 Documentation: Auditor should acquire required documents for check,
maintain documents in providing evidence that audit was carried out in
accordance with principles.
 Relationship among audit, attestation and assurance
A) Audit:
The main goal of an audit is to check whether the financial
statements prepared by management fairly represent the
company’s financial activities. Auditors examine how
management used the company’s resources and whether the final
results shown in the financial statements are correct. People like
investors and other stakeholders rely on these financial
statements to make decisions. But over time, as the way of getting
information has changed, decision-makers now want more than
just financial data—they want ongoing assurance about the
quality and relevance of the information. So, while audit services
have improved, the demand for assurance and attestation services
has also grown and is becoming more important.
B) Attestation:
 Auditors are trusted for their independence and
fairness. Because of this, many people started asking
auditors to give attestation—which means a certificate
or report confirming the reliability of information, even
beyond traditional financial statements.
 To meet this demand, the accounting profession created a
separate set of attestation standards.
 In an attestation service, three parties are involved:
1. The CPA (certified accountant) who gives the opinion
2. The responsible party (like a company) that provides the
information
3. The users (like investors or regulators) who rely on the
information
 Continue
 The three-party relationship in an attest
engagement User

C.A Responsible Party

 Attestation services happen when certified auditors are

hired to issue a report on a specific topic or claim made by
another party.
 In simple terms, attestation is a type of assurance where
the auditor gives a written opinion about the reliability
of the information provided by someone else.
C) Assurance

In the USA, the accounting profession expanded the role of auditors

through a special committee to include assurance services, along
with traditional auditing and attestation.

This means auditors now not only check the accuracy and
reliability of information, but also whether the information is
relevant and timely for decision-making.

Simply put, assurance is an independent professional service that

helps improve the quality and usefulness of information for
people who use it to make decisions.
Relationships among Auditing, Attest, And Assurance Services.

1. Assurance Services
Definition: Broadest category. Any service that improves the quality of information for
decision-makers.
Example: A firm checks the effectiveness of a company's internal controls and gives a
report on it.

2. Attest Services
Definition: A type of assurance service where the CPA (auditor) gives a written report
that attests to the reliability of a specific claim made by another party.
Example: A company claims it earned $5 million profit, and the auditor verifies and
confirms it.

3. Auditing
Definition: A specific type of attest service, usually focused on financial statements.
Example: An auditor examines a company’s balance sheet and income statement to
check if they are prepared correctly according to accounting standards.
Relationships among Auditing, Attest, And Assurance Services.

Service Scope Example

Reviewing internal
Assurance Broadest
controls for management
Verifying if a company’s
Attest Narrower
profit claim is accurate
Auditing financial
Audit Most specific statements to ensure
accuracy
Company Example:

Step 1: Assurance Service

The company's board wants to make sure all types of
information they use for decision-making—like financial
results, risk reports, and internal controls—are reliable
and useful.
So, they hire a CPA firm to provide assurance services to
improve the quality and trust in their information.
This is called an Assurance Service — broad and can
include many types of information, not just financial
statements.
Step 2: Attestation Service
Now, BrightTech claims in a report that their carbon
emissions are 20% lower this year. Investors want to
know if this claim is true.
The CPA is asked to verify and issue a written report
confirming whether the company’s claim is accurate.
This is an Attestation Service — a more specific
assurance service where the CPA attests to a claim made
by the company.
Step 3: Auditing
Finally, BrightTech needs to submit its financial
statements to shareholders. These must be checked for
fairness and accuracy.
The CPA examines the balance sheet, income statement,
and other records, and issues an audit report saying
whether the financial statements are correct.
This is called an Audit — a type of attestation service
that focuses specifically on financial statements.
The main differences between auditing & investigation

Auditing:
A company, ABC Ltd, hires an external auditor to audit its financial
statements for the year 2024.
The auditor checks whether the accounts are prepared according to
accounting standards.
They review a sample of transactions, verify assets and liabilities, and
finally issue an audit report stating whether the financial statements
give a true and fair view of the company’s financial position.
Purpose: General review of the company's financial health and
compliance.
Investigation:
The management of ABC Ltd suspects that an employee may be
involved in fraudulent activities involving cash transactions over
the past three years.
They appoint an investigator or forensic accountant to dig deep
into the cash records, track discrepancies, and identify if fraud
actually occurred.
The investigator conducts detailed checks, interviews employees,
and gathers evidence to prove or disprove the fraud.
Purpose: To uncover specific wrongdoing or gather facts
related to a particular concern.
 The main differences between auditing & investigation
Scope of auditing is so vast. Auditing is the systematic
process to make an expert opinion on the financial
statement. Investigation is a critical examination of the
accounts with a special purpose.
Meaning: Auditing
It is a systematic examination of books of account with
the help of supporting.

Investigation
It is detailed inquiry into accounts and financial matters
of a concern with special purpose.
 Nature: Auditing
It is recurring. In some cases it is compulsory.
Investigation
It is done only with certain objective at certain point
of time .
Type: Auditing :
Many types of audit are carried out such as ,
financial audit, operational audit, balance sheet
audit, interim audit etc.
Investigation
There are no different types of investigation
Appointment: Auditing
The auditor appointed by the share holders.
Investigation
Investigators are appointed by the interested person or
parties.
Report: Auditing
The audit report is submitted to the shareholders of the
company.
Investigation
The report of investigation is submitted to the appointed
authority.
Thus, we can say, audit is a systematic way of examination and
investigation is details inquiry of the fact.
Basis Auditing Investigation

To find out specific facts, reasons,

To express an opinion on the truth
Objective or evidence related to a particular
and fairness of financial statements.
issue.

Broad – covers all financial Narrow – focuses on specific area

Scope
statements and internal controls. or issue as per need.
May cover multiple years or a
Period Covered Usually covers one financial year.
specific period.
Usually conducted at the request of
Generally required by law or
Initiated by management, owners, or third
regulation.
parties.
Non-recurring and based on
Nature Routine, periodic, and systematic.
specific purpose or suspicion.

Auditor gives an audit report with Investigator gives a detailed report

Reporting
an opinion. with findings and conclusions.
In-depth and detailed checking of
Approach Relies on test checks and sampling.
records.
Often mandatory (e.g., for Optional, unless required in legal
Legal Status
companies). proceedings.
Sufficient and appropriate audit Conclusive and comprehensive
Evidence
evidence. evidence.
 Differences among Book-keeping, Accountancy, and
Auditing

 There are three parts of accounting such as

Book-keeping, Accountancy and Auditing.
They are closely enter-related. Differences
among them are given bellow:
Topic Meaning Purpose Who Does It
Recording all
financial To maintain daily
Book-keeping Book-keeper
transactions in a financial records.
systematic way.
To prepare
Summarizing,
financial
interpreting, and
Accountancy statements like Accountant
communicating
income statement,
financial data.
balance sheet.
Examining
To give an
financial records
independent Auditor (internal
Auditing and statements to
opinion on or external)
ensure accuracy
financial records.
and fairness.
Example 1: Small Business Owner – Grocery Shop
•Book-keeping: Records every sale and purchase made daily in a ledger or
software.
•Accountancy: At the end of the month, prepares the profit & loss statement and
balance sheet.
•Auditing: Once a year, an external auditor checks the accounts to verify if
everything is recorded correctly.

Example 2: School/College Financial Management

•Book-keeping: Clerk records all tuition fees received and expenses like
salaries and bills.
•Accountancy: Accountant prepares the annual financial report of the school.
•Auditing: Education board appoints an auditor to check if school funds are
properly used.
 Differences among Book-keeping, Accountancy, and
Auditing
(Definition)

(Bookkeeping)
The art of recording
business transaction in the (Accountancy)
books of Accounts and Service activity of
posting to Journal, Ledger recording and reporting.
and summarizing.

(Auditing)
Systematic and independent
examination of financial
statement and to make an
expert opinion.
Differences among Book-keeping, Accountancy, and Auditing
(Work level)

(Bookkeeping)

It is a preliminary task.

(Accountancy)

It is the advanced task

(Auditing)

It is the Final task.

Differences among Book-keeping, Accountancy, and Auditing
(Mandatory)

(Book-keeping)

It uses for all

organization
(Auditing)

It is only
mandatory for
public ltd.
(Accountancy) Company.

It is also used for all

enterprise
Differences among Book-keeping, Accountancy, and
Auditing
(Persons Involves)
(Book-keeping)
Who done this
work is called
Clerk.

(Accountancy)
Who done this
work is called
Accountant

(Auditing)
Who done this
work is called
Auditor
 (Book-keeping)
There qualification is not needed.

(Auditing)
Auditor must be a chartered
accountant.
(Accountancy)
Academic knowledge is required.
 Differences among Book-keeping, Accountancy, and
Auditing
(Responsibility)
(Accountancy)
(Book-keeping) He must be
He must be responsible to
responsible to the the owner
accountant

(Auditing)
He must be
responsible for all
 Conclusion
 By these differentiation, we can say that book-
keeping is a clerical job, where book-keeping is
end Accounting will be started. Where Accounting
is end, Auditing will be started.
 Who Needs an Audit?
Type of Organization Audit Requirement
Mandatory by law under most
Public Limited Company (PLC)
company laws.
Often mandatory, especially if
Private Limited Company revenue, assets, or employee size crosses
a threshold.
Not always mandatory, but may be
Partnership Firms
required under tax laws or by partners.
Not compulsory, but may be needed
Sole Proprietorship
for loans or tax purposes.
Required for compliance and donor
Non-Profit Organizations/NGOs
requirements.
Regularly audited by internal or
Government Organizations
external (e.g., Auditor General).
Always audited—strict regulatory
Banks and Financial Institutions
requirements.

Audit is mostly mandatory for companies, especially public limited companies, but
it's also used in many other organizations for accuracy, compliance, or legal reasons.