Page 9 - DCOM204_AUDITING_THEORY

Unit 1: Introduction to Auditing

According to Lawrence R. Dicksee, Notes

“an audit is an examination of accounting records undertaken with a view to establishing whether they
correctly and completely reflect the transactions to which they relate. In some instances, it may be necessary
to ascertain whether the transactions themselves are supported by authority.”
R. K. Mautz defines auditing as being
“concerned with the verification of accounting data, with determining the accuracy and reliability accounting
statement and reports.”
It is clear from the above definitions that auditing is the systematic and scientific examination of
the books of a 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 so as to exhibit a
true and fair view of the financial state of affairs of the business and profit or loss for the
financial period. The Auditor will have to go through various books and accounts and related
evidence to satisfy him about the accuracy and authenticity to report the financial health of the
business.
1. An examination and verification of a company’s financial and accounting records and
supporting documents by a professional, such as a Certified Public Accountant.
2. An audit is an IRS examination of an individual or corporation’s tax return, to verify its
accuracy. There are three types of audits: correspondence audits (the IRS mails a request
for additional information), office audits (an interview is conducted at a local IRS office),
and field audits (an interview is conducted at a taxpayer’s place of business, for a corporate
tax return). Since there is always the chance of an audit, experts recommend keeping good
records to support all the information in a return. The reason detailed and accurate
bookkeeping is so important is that the burden of proof is on the filer, not the IRS
(Investorwords).

!
Caution Ensure there is a clear understanding what auditing is about and what purpose it
serves.

Self Assessment

Fill in the blanks:
1. The audit of Joint Stock Company made compulsory by ....................
2. A person to do the auditing must be qualified as per the standards of the....................

3. Audit may be defined as an official inspection of an individual’s or organization’s accounts,
typically by ....................
4. Auditing is the systematic and scientific examination of the .................... and ....................

5. There are three types of audits: (a)....................; (b) ....................; and (c) ....................
1.3 Difference between Auditing and Accounting

1. The role of accountancy is to record the transaction in the book of accounts, extraction of
trial balance, preparation of trading and profit and loss account and balance sheet etc. On
the other hand auditing is the examination of books of account and checking the financial
statement for the purpose of finding out the true and fair position and results of operation

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