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The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, quality management, water management, and energy conservation. Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment, which is communicated through his audit report. Historically, the word auditing has been derived from Latin word audire which means to hear. According to Dicksee, traditionally auditing can be understood as an examination of accounting records undertaken with a view to establishing whether they completely reflect the transactions correctly for the related purpose. [2] In addition the auditor also expresses his opinion on the character of the statements of accounts prepared from the accounting records so examined as to whether they portray a true and fair picture. Auditing is a vital part of accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business. Financial audits are performed to ascertain the validity and reliability of information, as well as to provide an assessment of a system's internal control. The goal of an audit is to express an opinion of the person / organization / system (etc.) in question, under evaluation based on work done on a test basis. Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements a concept influenced by both quantitative (numerical) and qualitative factors. But recently, the argument that auditing should go beyond just true and fair is gaining momentum.
The Definition for Audit and Assurance Standard AAS-1 by the Institute of Chartered Accountants of India (ICAI): "Auditing is the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.
What is an audit?
An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting
policies and other explanatory notes. The purpose of an audit is to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position of the organisation at a given date, for example: Are details of what is owned and what the organisation owes properly recorded in the balance sheet? Are profits or losses properly assessed? When examining the financial report, auditors must follow auditing standards, which are set by a government body. Once auditors have completed their work, they write an audit report, explaining what they have done and giving an opinion drawn from their work. With some exceptions, all organisations subject to the Corporations Act must have an audit each year. Other organisations may require or request an audit depending on their structure and ownership or for a special purpose.
a wide reaching brief which considers anything which might be important to an organisations success.
INTERIM AUDIT
An interim audit is type of auditing strategy that is normally utilized at some point during the current fiscal year. This type of audit makes it possible to complete at least some of the tasks that are involved with the preparation of a final audit once the fiscal year has closed. The benefit of this approach is that it is possible to provide shareholders and other interested parties with final audit data sooner than if the final audit was commenced after the fiscal year was completed.
Like any type of auditing task, an interim audit will involve close examination of financial records. Interim auditing standards are the same as those used to conduct any type of accounting or inventory check, and must comply with all policies and procedures that are part of the final audit process. This is necessary since the data collected and analyzed during the interim auditing has a direct effect on the outcome of that end-of-year audit. INTERIM AUDIT is an audit conducted during the fiscal year usually as a means of minimizing the work and time involved in concluding the audit after the fiscal year. A corporation might have an interim audit covering the first nine months of the fiscal year so that at the end of the fiscal year most of the auditing will focus on the last three months of the fiscal year thus allowing for a comprehensive audit and early completion of the audit reports. An interim audit does not usually yield any formal reports from the external auditors.
10. Case Of New Partner :In a business when new partner enters, interim audit determines correct position of assets and liabilities. 11. Death Case :When any partner dies then interim audit is very helpful in determining the position of assets and liabilities . 12. Retirement Case :If any partner wants to leave or retire from the business then interim audit can easily determine the correct position of its assets and liabilities. 13. Price Fixing :Goods and services prices are fixed by the management and cost is calculated by adding the profit. The selling price is fixed and for this purpose interim audit is desirable. 14. Encourages Investment :Due to interim audit investor rely more on the company performance. He purchases and sells the shares keeping in view the audit report.
Continuous Audit
An auditing process that examines accounting practices continuously throughout the year. Continuous audits are usually technology-driven and designed to automate error
checking and data verification in real time. A continuous audit driven system generates alarm triggers that provide advance notice about anomalies and errors detected by the system. Continuous auditing is not to be confused with computer-aided auditing. In computeraided auditing, the auditor is simply being assisted by technology, such as spreadsheets to complete a periodic audit. Computer-aided auditing is driven solely by the auditor, while continuous auditing is meant to run automatically at regular intervals.
accounting period. 11. Moral Check In the continuous audit the auditor make the surprise visit in the business. The clerks are not aware about the visit. So they are alert and efficient in their work. There is less chances of frauds in this type of business. 12. Convenient for Auditors In this audit, the several visits paid by the auditor to the clients office in enable his work to proceed easily and smoothly. It also increases his confidence in his capacity to do his work efficiently and effectively. 13. Regular Staff The regular visits performed by the auditor, make the clerks alert to maintain the accounts up to date and accurate for fear that the auditor may land up in the office any time. 14. Sufficient Time Continuous audit provides sufficient time to the audit staff. The important and ambiguous matters may require more time to draw conclusion. There is ample time for such matters. 15. No Missing Entries Continuous audit is also helpful in keeping the full record. In the record there is no missing entries. 16. Early Correction of Errors The continuous audit is helpful for early correction of errors. The auditor can point out
Concurrent Audit
The concept of concurrent audit has been introduced to reduce time gap between occurrences of transaction and is overview or checking. It serves the purpose of effective internal control. Concurrent audit is an examination, which is contemporaneous with the occurrence of transactions or is carried out as near thereto as possible. The main focus while conducting concurrent audit it to ensure that transactions are not dealt with in routine but in adherence with the systems and procedures laid down. We ensure that the transaction or decisions are within the policy parameters laid down, they do not violate the instructions or policy prescriptions, and that they are within the delegated authority and in compliance with the terms and conditions for exercise of the delegated authority. Concurrent audit is a systematic and timely examination of financial transaction on a regular basis to ensure accuracy, authenticity, compliance with procedures and guidelines.The emphasis under concurrent audit is not on test checking but on substantial checking of transactions. The concept of concurrent audit has been introduced to reduce the time gap between occurrence of transaction and is overview or checking. The concurrent audit serves the purpose of effective control as it is normally conducted by external agencies like chartered accountants firms.
Annual audit
An annual review of the financial records of an organization, such as a business, a non-profit group, or a governmentagency. The audit may check the accuracyof records, compliance with accounting methods, and the soundness of financialpractices, including internal controls.
Advantages
1. Audited accounts are readily accepted by Government authorities like Tax authorities and Central banks. 2. By auditing the accounts Errors and frauds can be detected and rectified in time. 3. Audited accounts carry greater authority than the accounts which have not been audited. 4. For accessing finance from financial institutions like Banks, previous years audited accounts are evaluated for determining repayment capability. 5. Regular audit of account create fear among the employees in the accounts department and exercise a great moral influence on clients staff thereby restraining them from commit frauds and errors. 6. Audited accounts facilitate settlement of claims on the retirement/death of a
partner. 7. In the event of loss of property by fire or on happening of the event insured against, Audited accounts help in the early settlement of claims from the insurance company. 8. In case of Public Company where ownership is separated from management, auditing of accounts reassure the shareholders that accounts have been properly maintained, funds are utilized for the right purpose and the management have not taken any undue advantage of their position. 9. To determine the value of the business in the event of purchase or sales of the business, audited account will be the treated as the base for the evaluation. 10.The audit of accounts by a qualified auditor also help the management to understand the financial position of the business and also it will help the management to take decision on various matters like report in internal control system of the organization or setting up of an internal audit department etc. 11.If the accounts have been audited by an independent person, disputes between the management and labor unions on payment of bonus and higher wages can be settled amicably. 12. In the event of admission of a new partner, audited accounts will facilitate the formation of terms and conditions for joining the new partner. Last 3 years audited accounts will give a general idea about the growth and financial position of the business to the new partner.
Disadvantages
1. The payment of audit fees brings extra cost burden to the organization. 2. During an audit the auditor requires the attention several company staff and therefore causes disruption. 3. An audit does not assure future viability of the organization audited 4. An audit does not assure the effectiveness and efficiency of management. 5. Auditors express opinion and therefore does not give total assurance of the true fair presentation of annual reports.
system.A balance sheet approach to an audit consists of checking for the correct recordation of the existence, ownership and value of a company's assets and liabilities. With the balance sheet approach, the assumption is made, that if all the balance sheet accounts are tested and verified, then the company's profit/loss statement will not be significantly misstated. Usually, this type of audit focuses heavily on the reporting of a company's financial transactions, such as cash and other assets and the receipt and disbursement of funds (accounts receivable and accounts payable).
Accuracy of Valuations
Auditors examine whether the figures assigned to the various headings under the balance sheet are accurate. They compare the information in the financial statement with third-party documentation. For example, auditors will determine if the assets and liabilities found in the balance sheet exist. They confirm that the assets legally belong to the company and the liabilities properly attach to the firm. They also check restrictions on the use of the assets, and whether those restrictions must be disclosed.
ADVANTAGES OF FINAL AUDIT :Following are the important advantages of final audit : 1. Alteration Chances Limited :After the final audit it becomes very difficult for any one to change the figures of accounts for his benefit. 2. Checking Of Complete Record :In case of final audit, whole the record is supplied to the auditor for checking. So all the facts about the financial year's are before the auditor. 3. Advantages For The Shareholders :Final account is very useful for the shareholders to know the real position of the company. Due to final accounts they feel more satisfaction. 4. Advantage For The Owner :Sometimes the business is so large that even one owner don't know the real position about the business. So final audit throws light on the business position and provides him satisfaction. 5. Suitable :Final audit is very suitable for the auditor and client staff. It saves both the parties from continuous disturbance. 6. Saving Of Time :The auditor visits the clients office once a year and goes on checking until the audit is completed. In this way time of both the parties is saved. 7. Legal Demands :For the joint stock companies audit is compulsory. So final audit has an advantage that it fulfills the requirement of law. 8. Economical :As compared to the continuous audit it is less expensive. Because in case of final audit auditor has to spend less time. 9. Improves The Efficiency :All the financial year client staff remains vigilant and efficient due to the fear of final audit. 10. Importance Of Goodwill :About the fairness and correctness of accounts final report is very important for the goodwill of the company. 11. Seasonal Business :In such cases the managers are free in the off season. So in that period they can pay proper attention to the auditors. Final audit is the most suitable for such business.
12. Continuous Process :Final audit is continuous process without any break from start to end. It becomes very easy for the auditors and managers. 13. Effective :If in control system is strong then chances of fraud are low and final audit is sufficient to carry out at the end of the year. 14. Popular Audit :Final audit is very suitable for small and medium scale business. Its cost is very low. It is very popular type of audit.