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Advanced Auditing




                      Notes         and by the Institute of Chartered Accountants of India. Unit tries to define audit, and explain
                                    various  aspects of  auditing and duties and responsibilities of  an auditor. Two objectives of
                                    auditing are primary and secondary. The main object of auditing is to help the auditor to form
                                    an opinion as to whether the books of account and the financial statements show true and fair
                                    view of the business and the subsidiary object of auditing is to detect and prevent errors and
                                    frauds in the books  of accounts.  Different classes  of audit and locating  different errors are
                                    explained.

                                    1.1 Origin of Audit


                                    From the time of ancient Egyptians, Greeks and Romans, the practice of auditing the accounts of
                                    public institutions existed. Checking clerks were appointed in those days to check the public
                                    accounts. To locate frauds as well as to find out whether the receipts and payments are properly
                                    recorded by the person responsible was the main objective of auditing of those days.
                                    During the 18th century industrial revolution brought in large scale production, steam power,
                                    improved facilities and better means of communication. This resulted in the origin of joint stock
                                    form of  organizations. Shareholders  contribute capital  of these  companies but do not have
                                    control over the day-to-day working of the organization. The shareholders who have invested
                                    their money would naturally be interested in knowing the financial position of the company.
                                    This originated the need of an independent person who would check the accounts and report the
                                    shareholders on the accuracy of the accounts and the safety of their investment.

                                    The Indian Companies Act,  1913 defined the qualification, power, duties and procedure of
                                    appointment of the Auditor. The audit of Joint Stock Company made compulsory by this Act.
                                    Educational qualification certificate were issued by the Central and State Governments to those
                                    who undergone the prescribed course. In the year 1949, Chartered Accountants Act was passed.
                                    Companies Act, 1956 further elaborated the provisions related to the auditing and accounts of
                                    the companies. Now a person to do the auditing must be qualified as per the standards of the
                                    Institute of Chartered Accountants of India.
                                    The word ‘Audit’ is originated from the Latin word ‘audire’ which means ‘to hear’. In the earlier
                                    days, whenever there is suspected fraud in a business organization, the owner of the business
                                    would appoint a person to check the accounts and hear the explanations given by the person
                                    responsible for keeping the account and  funds. In those days, the audit is done to find out
                                    whether the payments and receipt are properly accounted or not. The objective of modern day
                                    accounting is not only  for the verification of cash but  to report the financial position of the
                                    undertaking as disclosed by its Balance sheet and Profit and Loss Account.

                                       


                                       Caselet     Let us Root the GAO on

                                       I like the heat CMS and its contractors are getting for their audit activities as of late. The
                                       lead for  this story  in  Bloomberg  Business week,  based  on  a  recent  report  from  the
                                       Government Accountability Office (GAO), pretty much says it all:
                                       “A program to fight fraud in the Medicaid health system for the poor has cost the U.S. at
                                       least $102 million in auditing fees since 2008 while identifying less than $20 million in
                                       overpayments, investigators found.”
                                       In other words, the government spends about five times more money chasing fraud than
                                       it gets back. The story continues:
                                                                                                           Contd....



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