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Audit
or
Audit in Accounting
Meaning
The word ‘Audit’ is derived from the Latin word,
audire, which means ‘to hear’. Originally, it was customary for persons
responsible for maintenance of account too go to some impartial and experienced
persons, ordinarily judge, who used to hear these accounts and express their
opinion about their correctness or otherwise. Such persons, were know as
‘auditors’.
Audit is
the examination or inspection of various books of accounts by an auditor
followed by physical checking of inventory to make sure that all departments
are following documented system of recording transactions. It is done to
ascertain the accuracy of financial statements provided by the organization.
Audit is a
periodic, independent examination and verification of the assets and
liabilities and financial transactions and controls of a company to determine the reliability of its accounting records. The objective is to enable the auditor to express an opinion on the
financial information provided. Auditing is a branch of the accountancy profession, carried out by professionals qualified to form an independent
opinion about the accuracy of a company's accounts. The audit aims to ensure
that the company's financial statement provide relevant and reliable information, although it cannot be assumed that
an auditor's opinion is an assurance about the future viability of the company or about the efficiency of management
in running.
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Definitions
of Audit
‘An
examination and verification of a Company's financial and Accounting
records and supporting documents by a professional, such as a Certified Public
Accountant’.
‘An audit is an IRS examination of an individual or corporation's tax return, to verify its accuracy.
There are three types of audits: correspondence audits (the IRS mails a request for additional information), office audits and field audits (an interview is conducted at a taxpayer's place of business, for a corporate tax return). Since
there is always the change of an audit, experts recommend keeping good records to support all the
information in a return. The reason detailed and accurate bookkeeping is so important is that the burden of proof is on the filer,
not the IRS’.
Auditing
or
Auditing in Accounting
Origin
of Auditing
The Origin
of ‘Auditing’ may be traced back to the 18th century when the
practice of large scale production was developed as a results of industrial
revolution.
The
industrial revolution of England was another landmark in the history of trade
and commerce. This led to great increase in the volume of trading operations
which necessitated the use of more capital and the average trader was compelled
to combine in partnership with others.
The
Institute of Chartered accountants in England and Wales was incorporated by
Royal Charter on May 11, 1880 with the sole purpose of preparing auditors.
Usually, auditors in India were aso prepared by this institute. In January 1923,
the British Association of Accountants and auditors was established and a
person after passing his examination from this association could be fully
competent to work as professional auditors in India.
Definitions
of Auditing
M.L. Shandilya:
-‘Auditing may be defined as inspecting comparing, checking, reviewing,
vouching, examining and verifying the books of accounts of a business concern
with a view to have a correct and true idea of its financial state of affairs.’
‘Auditing
is an important professional task carrying heavy responsibility and calling for
commensurate skill and judgment’
Auditing
in India
From 914
to1932 the history of Auditing in India dates back to April 1 1914 when the
Indian Companies act, 1913 came into force. The growth of the Accountancy profession
in this country was actually an outcome of this act, which made in obligatory on
the part of every Company registered under it is have the Accounts audited at
last once every year. The act for the first time prescribed the qualification
for an auditor.
Initially
the Government of Bombay was first to arrange for conducting the courses of
study in this direction. The qualification
of being
an auditors was obtained by passing the examination of the Government Diploma
in Accountancy [G.D.A] conducted by the Bombay Government.
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Objects
of an Audit
The main
object of audit is verify the accounts and to report whether the Balance sheet
and the profit and loss account have been drawn properly according to the
companies Act and whether they exhibit a true and fair view of the state of
affairs of the concern.
The
verification of accounts is done to see if they are correct, complete and in
conformity with the Law.
The main
objects of audit are following
Detection
of errors and fraud,
Prevention
of the recurrence of those errors and of fraud.
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