Topics: Internal control, Audit, Financial audit Pages: 5 (960 words) Published: August 2, 2014
Process Of Auditing,Auditing Vs Investigation
Introduction to auditing:
Economic decisions in every society must be based upon the information available at the time the decision is made. For example, the decision of a bank to make a loan to a business is based upon previous financial relationships with that business, the financial condition of the company as reflected by its financial statements and other factors.As a result the bank has lost both the principal and the interest. In addition, another company that could have used the funds effectively was deprived of the money. DEFINITION :

1. Spicer and Pegler: "Auditing is such an examination of books of accounts and vouchers of business, as will enable the auditors to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and that the profit and loss account gives true and fair view of the profit/loss for the financial period, according to the best of information and explanation given to him and as shown by the books; and if not, in what respect he is not satisfied". ORIGIN AND EVOLUTION :

The term audit is derived from the Latin term ‘audire,’ which means to hear. In early days an auditor used to listen to the accounts read over by an accountant in order to check them. Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Greece, Egypt. Rome, U.K. and India. The Vedas contain reference to accounts and auditing. Arthasashthra by Kautilya detailed rules for accounting and auditing of public finances. The original objective of auditing was to detect and prevent errors and frauds. FEATURES OF AUDITING

1. Audit is undertaken by an independent person or body of persons who are duly qualified for the job. 2. Audit is a verification of the results shown by the profit and loss account and the state of affairs as shown by the balance sheet. 3. Audit is a critical review of the system of accounting and internal control. 4. Audit is done with the help of vouchers, documents, information and explanations received from the authorities. OBJECTIVES OF AUDITING

There are two main objectives of auditing. The primary objective and the secondary or incidental objective. Primary objective – as per Section 227 of the Companies Act 1956, the primary duty (objective) of the auditor is to report to the owners whether the balance sheet gives a true and fair view of the Company’s state of affairs and the profit and loss A/c gives a correct figure of profit of loss for the financial year. Secondary objective – it is also called the incidental objective as it is incidental to the satisfaction of the main objective. The incidental objective of auditing are:

i. Detection and prevention of Frauds, and
ii. Detection and prevention of Errors.
Process of auditing:
The audit process is generally a ten-step procedure as outlined below. Please click through the steps in order to better understand the process. 1. Notification
2. Planning
3. Opening Meeting
4. Fieldwork
5. Communication
6. Report Drafting
7. Management Response
8. Closing Meeting
9. Report Distribution
10. Follow-up
First, you will receive a letter to inform you of an upcoming audit. The auditor will send you a preliminary checklist. This is a list of documents (e.g. organization charts, financial statements) that will help the auditor learn about your unit before planning the audit. Communication:

Throughout the process, the auditor will keep you informed, and you will have an opportunity to discuss issues noted and the possible solutions. Planning:
After reviewing the information, the auditor will plan the review, conduct an engagement risk assessment, draft an audit plan, and schedule an opening meeting. Opening Meeting:
The opening meeting should include senior management and any administrative staff that may be involved in the audit. During this...
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