Page 19 - DCOM204_AUDITING_THEORY

Unit 1: Introduction to Auditing

For a better understanding we could classify the objective of audit as: 1. Primary Objectives; Notes
2. Secondary Objectives.
When accountings principles are violated in writing the books of account the error of
principal occurs. For example, when wrong account head is chosen to record a transaction,
error of principal occurs. When expenses of capital nature are debited to revenue or vice
versa it is said that error of principal has occurred.
There are following types of audit: Statutory Audit; Non-statutory Audit; External Audit;
Internal audit; Final Audit; Social audit; Performance Audit, etc.

1.10 Keywords

Internal Audit: This is a review of operation carried out sometimes continuously specially
assigned staff with in the client business.

Non Statutory audit: This are the audit not specially required by law this scope of the audit will
be outline by the contract between the auditor and the clients.
Social Audit: Social audit is performed to know the corporate social responsibility.

Statutory audit: This is the audit governed by statute such as the Company’s Act.
Subsidiary objects: The subsidiary object of auditing is to detect and prevent errors and frauds in
the books of accounts.

1.11 Review Questions

1. Briefly explain the origin of audit.
2. Define audit. What is the difference between auditing and accounting?
3. What are the objectives of audit?

4. Write short notes on following:
(a) Detection and prevention of errors
(b) Detection and prevention of frauds

(c) Errors of commission
(d) Errors of omission
(e) Compensating Errors.

(f) Misappropriation of cash
(g) Misappropriation of goods
(h) Falsification or manipulation of accounts

(i) Window dressing
(j) Secret reserves
5. What are the advantages of auditing for different organizations?

6. What are the different types of audit? What is the difference between internal audit and
statutory audit?

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