Title of the report - AUDITING

PREPARED BY _ SK RAKIB
INSTITUTE - HALDIA INSTITUTE OF
MANAGEMENT
DEPARTMENT - BBA IN ACCOUNTANCY,
TAXATION AND AUDITING
SEMESTER - 5th
PAPER NAME - AUDITING & ASSURANCE
PAPER CODE - BBA AT & A 501
ROLL NO. – 17551422009
REGISTRATION NO. – 221752010062 ( 2022 -23)
Meaning of Auditing
Auditing simply refers to the evaluation of business books of accounts & vouchers. It is done to make
sure whether all the financial transactions are accurately recorded. Auditing aims at finding out the
errors from books of accounts of the business.

It aims at the prevention of frauds. This examination is totally unbiased & conducted by an
independent person. The person doing auditing should be qualified for the job to perform it with
accuracy. This can be performed either by internal employees of a business or the person who are
external to business.

Auditing is conducted continuously at regular intervals by the auditor. However, auditing is not
mandatory for all businesses.

Objectives of Auditing

The objectives of auditing keep changing according to the advancements in the

business techniques. These objectives can be classified into:

1) Main objective
2) Subsidiary objectives

Main Objective

The main objective of auditing is to find reliability of financial position and

profit and loss statements. The aim is to ensure that the accounts reveal a true
and fair face of the business and all of its transactions. The objective is also to
verify and establish that at a given date, both the profit and loss account and
the balance sheet presents an accurate and reliable financial position of the
business.
Hence, the main objective of auditing is to form an independent judgment and
opinion about the reliability of accounts and truth and fairness of financial
state of affairs and working results.
Subsidiary objectives
1. Detection and prevention of fraud: It is one of the foremost subsidiary
objectives of auditing. As, fraud refers to the intentional
misrepresentation of financial information. Fraud can involve:
 1) Manipulation, falsification, or alteration of financial records
2) Misappropriation of assets
3) Misapplication of accounting policies
4) Recording transactions without proofs
5) Suppression of effect of transactions from records|

2. Detection and prevention of errors: It is another important objective of

auditing. The act of auditing ensures that there is no misrepresentation
of the financial statements. Such errors can be ascertained by checking
and vouching thoroughly the books of accounts, vouchers, ledger
accounts, etc.

Types of Auditing

Internal Audit
An internal audit is one that is conducted within the organization by its own
employees and stakeholders. It is conducted for accessing the effectiveness of
internal processes, reviewing financial information, and ensuring whether a
business is complying itself with proposed laws and regulations. Internal audit
is termed as a first checkpoint for every organization to check the authenticity
of their book of accounts, operational processes, security protocols and IT
infrastructure are in line with their internal aims and external regulatory
requirements.
External Audit
External audit refers to the evaluation of books of accounts by external persons
that are independent of the business organization. External auditors are third
parties like a charted accountant, IRS and a tax agency. These all have
specialized knowledge and tasked with examination of organization’s book of
accounts in compliance with (GAAS) Generally accepted auditing standards.
External audit is mandatory in nature which need to be done due to
shareholders requirements and regulatory reasons. It provides more
transparency to business state of affairs and determine the accuracy of its
accounting records. External audit is more preferred by investors and lenders
for ensuring financial heath of business
Financial Audit It is one of the most common type of audit which are mostly
done external auditors. Financial audit is also known as a statutory audit which
evaluates the truth and fairness of financial statements of business
organization. Every business exists to generate profits and enhance wealth of
their shareholders. Financial audit enables investor and other stakeholders to
ensure whether the business is going well or not so that their capital remain
safe and yield expected returns. Under it, financial transactions, procedures
and balances are reviewed by auditors in order to provide their credit opinion
to lenders, investors and creditors.
Operational Audit
Operational audit is an internal audit performed by organization voluntarily for
accessing the effectiveness of its internal operations. This audit determines
whether all resources are utilized in the most efficient manner towards the
achievement of organizational objectives. It monitors activities like handling of
cash, materials procurement, equipment inventories and services of manpower
working within the organization
Compliance Audit
Compliance audit is a specific audit that is conducted to ensure whether
business comply with internal and external standards. It examines the policies
and procedures of business as per the requirements of prescribed laws and
regulations. Compliance audit is most commonly conducted in educational
institutions and regulated industries.

Principles for Governing audit.

Basis Principles for Governing audit
SA 200 "Basic Principals Governing an Audit", describes the basic principles
which govern the auditor's professional responsibilities and which should be
complied with wherever an audit is carried. They are described below:
I. Integrity objectivity and independence: An auditor should be honest,
sincere, impartial and free from bias. He should be a man of high
integrity and objectivity.
II. Confidentiality: The auditor should respect confidentiality of
information acquired during the course of his work and should not
disclose the information without the prior permission of the client,
unless there
 is a legal duty to disclose.
III. Skill and competence: The auditor must acquire adequate training and
experience. He should be competent, skillful and keep himself abreast
of the latest developments including pronouncements of ICAI on
accounting and auditing matters.
IV. Work performed by others: If the auditor delegates some work to
others and uses work performed by others including that of an expert,
he continues to be responsible for forming and expressing his opinion
on the financial information.
V. Documentation: The auditor should document matters which are
important in providing evidence toensure that the audit was carried out
in accordance with the basic principles.
VI. Planning: The auditor should plan his work to enable him to conduct the
audit in an effective, efficient and timely manner. He should acquire
knowledge of client's accounting system, the extent of reliance that
could be placed on internal control and coordinate the work to be
performed.
VII. Audit evidence: The auditor should obtain sufficient appropriate
evidences through the performanceof compliance and other substantive
procedures to enable him to draw reasonable conclusions to form an
opinion on the financial information.
VIII. Accounting System and Internal Control: The management is
responsible for maintaining an
adequate accounting system incorporating various internal controls
appropriate to the size and nature of business. He auditor should assure
himself that the accounting system is adequate and all the information
which should be recorded has been recorded. Internal control system
contributes to such assurance.
IX. Audit conclusions and reporting: On the basis of the audit evidence, he
should review and assess the
audit conclusions. He should ascertain:
1. As whether accounting policies have been consistently applied;
2. Whether financial information complies with regulations and statutory
requirements; and
3. There is adequate disclosure of material matters relevant to the
presentation of financial information subiect to statutory requirements
Auditing Structure

A structure audit is a comprehensive inspection of a building's condition,

structure, risks, and status. It's similar to a doctor's checkup for a patient, and it
can help ensure that a building is safe and has no risk.
A structural audit can: Ensure safe working conditions, Prevent injury and loss
of life, Identify critical areas that need immediate action, and Analyze and
suggest repairs and retrofitting measures.
A structural audit is typically conducted by an engineering expert and may
include the following steps:
1. Visual inspection to determine the need for non-destructive testing
(NDT)
2. Conducting NDT as assessed
3. Interpreting the results of the NDT
structural audit depends on the age of the building:
 15–30 years old: A structural audit is required every five years
 Over 30 years old: A structural audit is required every three years

Auditing Periodicity
On The Basis of Periodicity of Audit:
 Continuous audit: A continuous audit or detailed audit, which involves a
detailed examination of the books of account at regular intervals of, say
one month or three months.
 Periodical Audit: Periodical audit is one which is taken up at the
close of the financial or trading period when all the accounts have been
balanced and a trading and profit and loss account and the balance
sheet have been prepared.
 Interim Audit: Some writers opine that an audit which is conducted in
between the two annual audits, with a view to find out interim profits to
 enable to company to declare an interim dividend, should be called
interim Audit.
 Occasional Audit: As the name indicates this type of audit is
conducted once a while whenever the need Aries and the client desire it
to be carried out.

Errors and Fraud-Concepts in Auditing.

Types of Errors:
Errors of Principle: Such errors are committed when some fundamental
principle 1' .. bf accounting is not properly observed in recording a transaction
Clerical Errors: Such an error arises on account of wrong posting.
 Errors of Commission : When amount of transaction or entry is
incorrectly recorded in accounting books/ledger.
 Errors of Omission : When the transactions are not recorded in the
books of original entry or posted to the ledger.
 Compensating Errors : When two or more errors are committed in such
a way that the result df these errors on the debits and credits is nil.
 Error of Duplication: When a transaction is recorded more than once.
Types of Frauds:
Misappropriation of Cash: It is very common in big firms and can take place
usually through:
 Suppressing receipts
 Recording less amount than the actual amount of receipt
 Fictitious payments
 Recording more amount than the actual amount of payment.
Misappropriation of Goods: This is common, especially, when goods are of
high value but not bulky.
Falsification or Manipulation of account: Accounts may he manipulated by
those responsible persons who are in top management of the organisation in
order to achieve certain specific objectives.
Window dressing: When accounts are prepared in such a way that apparently
on the face of it, they indicate a much better picture than actually what they
are.
Secret Reserves: When accounts are prepared in such a way that apparently on
the face of it, they disclose a worse picture than actually what they are.

Conclusion

The goal of an audit is to form and express an opinion on financial statements.

The audit is performed to get reasonable assurance on whether the financial
statements are free of material misstatement. An audit also includes assessing
the accounting principles used and the significant estimates made by the
management. Audit conclusions and reporting are one of the principles
governing an audit. Reporting is the last procedure of the process of an audit.

Reference

1. https://commercemates.com/objectives auditing/#google_vignette
2. https://testbook.com/ugc-net-commerce/accountancy-auditing
3. https://rajras.in/auditing-meaning-objectives-errors-and-frauds/
4. https://edurev.in/t/113335/Principles-Governing-an-Audit-Auditing-
Concepts--A
5. https://www.ripublication.com/ijcer_spl/ijcerv5n4spl_17.pdf
6. https://www.qima.com/structural-audits
7. https://qsstudy.com/auditing-types-on-the-basis-of-periodicity-and-
subject-matter/#:~:text=Periodical%20Audit%3A%20Periodical%20audit
%20is%20one%20which%20is,account%20and%20the%20balance
%20sheet%20have%20been%20prepared.
8. https://www.thehindubusinessline.com/news/education/
and/article23030621.ece