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Unit 1: Introduction to Auditing

1.8 Objectives of Audit Notes

For a better understanding we could classify the objective of audit as:

1.8.1 Primary Objectives

To determine and judge the reliability of the financial statement and the supporting accounting
records of a particular financial period is the main purpose of the audit. As per the Indian
Companies Act, 1956 it is mandatory for the organizations to appoint a auditor who, after the
examination and verification of the books of account, disclose his opinion that whether the
audited books of accounts, Profit and Loss Account and Balance Sheet are showing the true and
fair view of the state of affairs of the company’s business. To get a true and fair view of the
companies’ affairs and express his opinion, he has to thoroughly check all the transactions and
relevant documents of the company made during the audited period. Which will help the
auditor to report the financial condition and working result of the organization? While carrying
out the process of audit, the auditor may come across certain errors and frauds. But detection of
fraud or errors is not the primary objective of the audit. They are come under the secondary
objectives of audit.

Did u know? Audit also disclose whether the Accounting system adopted in the organization
is adequate and appropriate in recording the various transactions as well as the setbacks of
the system.

1.8.2 Secondary Objectives

In order to report the financial condition of the business, auditor has to examine the books of
accounts and the relevant documents. In that process he may come across some errors and
frauds. We may classify these errors and frauds as below:
1. Detection and Prevention of Errors: Following types of errors can be detected in the
process of auditing:
(a) Clerical Errors: Due to wrong posting such errors may occur. Money received from
Microsoft credited to the Semens’ account is an example of clerical error. Even
though the account was posted wrongly, the trial balance will agree. We can classify
clerical errors as below:

(i) Errors of Commission: These errors are errors caused due to wrong posting
either wholly or partially of in the books of original entry or ledger accounts
or wrong totalling, wrong calculations, wrong balancing and wrong casting
of subsidiary books.

Example: 5000 is paid to Microsoft for the supply of windows program and the same is
recorded in the cash book. While posting the ledger the Microsoft’s account is debited by 500.
It may be due to the carelessness of the accountant. Most of these errors of commission are
reflected in the trial balance and can be identified by routine checking of the books.
(ii) Errors of Omission: When there is no record of transactions in the books of
original entry or omission of posting in the ledger could lead to such errors.
Sales not recorded in the sales book or omission to enter invoices in the
purchase book is examples of Errors of Omission. Errors due to entire omission
will not affect the trial balance. Errors due to partial omission will affect the
trial balance and can be detected.

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