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Consideration Before Commencing An Audit

The document discusses the importance of conducting audits, both internal and external, to objectively examine financial records and statements and ensure they accurately represent the financial position of an organization. It outlines the different types of audits including financial, internal, and IRS audits. The document also explains the necessary preparation and planning an auditor must undertake before beginning an audit, such as developing an audit program and time budget.

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Tushar Gaur
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215 views13 pages

Consideration Before Commencing An Audit

The document discusses the importance of conducting audits, both internal and external, to objectively examine financial records and statements and ensure they accurately represent the financial position of an organization. It outlines the different types of audits including financial, internal, and IRS audits. The document also explains the necessary preparation and planning an auditor must undertake before beginning an audit, such as developing an audit program and time budget.

Uploaded by

Tushar Gaur
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CONSIDERATION BEFORE

COMMENCING AN AUDIT
What is audit?
 A financial audit is an objective examination
and evaluation of the financial statements of
an organization to make sure that the financial
records are a fair and accurate representation
of the transactions they claim to represent.
 The audit can be conducted internally by
employees of the organization or externally by
an outside Certified Public Accountant (CPA)
 firm.
Types of Audits

External Audits
Audits performed by outside parties can be
extremely helpful in removing any bias in
reviewing the state of a company's financials.
Financial audits seek to identify if there are any
material misstatements in the financial
statements. External auditors follow a set of
standards different from that of the company
or organization hiring them to do the work
• Internal Audits
Internal auditors are employed by the company or organization
for whom they are performing an audit, and the resulting audit
report is given directly to management and the board of directors.
The results of the internal audit are used to make managerial
changes and improvements to internal controls.
The purpose of an internal audit is to ensure compliance with
laws and regulations and to help maintain accurate and timely
financial reporting and data collection.
It also provides a benefit to management by identifying flaws in
internal control or financial reporting prior to its review by
external auditors.
• Internal Revenue Service (IRS) Audits
The Internal Revenue Service (IRS) also routinely performs
audits to verify the accuracy of a taxpayer’s return and specific
transactions. When the IRS audits a person or company, it
usually carries a negative connotation and is seen as evidence
of some type of wrongdoing by the taxpayer. There are three
possible IRS audit outcomes available: no change to the tax
return, a change that is accepted by the taxpayer, or a change
that the taxpayer disagrees with. If the change is accepted, the
taxpayer may owe additional taxes or penalties. If the taxpayer
disagrees, there is a process to follow that may include
mediation or an appeal
Purpose of Audit

• The purpose of auditing can be classified into two categories –


• a) Primary objective :
• As per Section 143 of the Companies Act, 2013, the primary duty of
the auditor is to report to the owners that the accounts, financial
statements give a true and fair view of the state of the company’s
affairs as at the end of its financial year and profit or loss and cash
flow for the year and such other matters as may be prescribed.
• b) Secondary objective or incidental objective :
• It is also known as incidental objective. The incidental objectives are:-
• Detection and prevention of frauds
• Detection and prevention of errors
Why audit is important?
• Audit satisfies the owner about the working of the business operations
and the functioning of its various departments.
• The audit helps in the detection and prevention of errors and frauds.
• The audit helps in maintaining the records and verification of books of
the books of accounts.
• The independent opinion of the auditor is extracted through auditing
which is extremely essential for the management of the company.
• The audit establishes a moral check on the staff of the business so that
they became aware of not committing any irregularity. This makes the
staff more active and responsible.
• Audit protects the interests of the shareholders in the case of a joint-
stock company by assuring them that their accounts are being managed
properly and their interests will not suffer under any circumstances.
Preparation before the commencement of Audit

• Ascertain the scope of duties


• Procure engagement letter
• Knowledge about business
• Knowledge of the accounting system
• List of Principal officers
• Knowledge of the technical details
• Enquiry into special circumstances if any
• Instruction to the client
Audit Planning
• Developing time budgets
• Assigning audit staff personnel
• Scheduling dates for interim and year end
audit procedures
Audit Programme
• “An audit programme is an outline of all
procedures to be followed in order to arrive at
an opinion concerning client’s financial
statements.”
• Example-Audit programme for cash, Check
posting of cash book, Check rough book and
petty cash book
Advantage of Audit Programme
• Clarity of duties
• Efficiency of the audit assistants increase
• It enables the auditor to keep in touch with the work done
• Fixing of the responsibility of audit assistants becomes
easier
• The routine get systematic
• Continuity is not lost even if the person on duty is changed
• The chief auditor is saved from botheration of issuing
instructions to the staff.
Disadvantage of Audit Programme
• The task becomes mechanical
• The task may be finished hurriedly
• Not good for small organisation
• Lack of uniformity of audit programme
• It brings rigidity
• Inefficient audit assistants may shelter behind
the programme.

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