Page 19 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes  Audit may be defined as an official inspection of an individual’s or organization’s accounts,
typically by an independent body.
 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 of a concern.
 For a better understanding we could classify the objective of audit as: 1. Primary Objectives;
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

Audit: Audit may be defined as ‘an official inspection of an individual’s or organization’s
accounts, typically by an independent body’.
First Party Audit: An audit performed within an organization by that organization’s own
auditing resource. It is also referred to as an Internal Audit.
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 Companies Act.
Subsidiary objects: The subsidiary object of auditing is to detect and prevent errors and frauds in
the books of accounts.
Third Party Audit: An audit of an organization performed by a body that is independent of the
organization being audited, e.g. Certification Body (Registrar) or Regulatory Body.

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

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