Auditing is a systematic examination of the books andrecords of a business or other organization in order toascertain or verify and to report upon the facts regarding itsfinancial operation and the result thereof’.R.B. Bose has defined as ‘Audit may be said to be verificationof the accuracy and correctness of the books of accounts byindependent person qualified for the job and not in any wayconnected with the preparation of such accounts’.The word ‘audit’ is derived from the Latin Word ’auditure’which means to hear . Formerly a person responsible formaintenance of accounts went to some impartial andexperienced person, who used to check these accounts andexpress his opinion about its correctness. These experiencedpersons were known as ‘auditors’.
The role of the internal auditor normally involves checking, verifying and reporting on:1. Financial information required by the management.2. Costing information required by the management for example budget, variance, cash forecasting, etc.3. Effectiveness of internal control system, preventing loss of assets or manipulation of accounting data.4. Efficiency of companies management particularly in the way in which it formulates its plans, policies and decisions.
A person or a group of persons deputed to auditthe accounts is/are called internal Auditor/s. Thesepersons may be an internal part of the organization(employees) or can be hired from outside agencyto audit the accounts. Internal auditing of accountsis not compulsory. The internal Auditor may not beregistered Chartered Accountant(C.A.).
An auditing is not only useful to the management but italso ensure socio-economic benefits.The following are the advantages of auditing :Benefits to the Management: 1. It detects the errors and frauds. 2. It keeps employees more alert. 3. It reduces the wear and tear of assets and also helps inbetter utilization of assets. 4. It increases profitability. 5. It reduces the cost due to better management, efficiencyand control. 6. It points out management’s weakness and recommendsbetter accounting systems.
Benefits To The Share Holders and General Public:1.This tells the public whether is making sufficientprofits or not.2. In its reports, it gives the information like earning pershare, cash earning per share ,debt equity ratio, priceequity ratio, comparative balance sheets, comparativeincome expenditure statements, etc. This helps publicand share holders in deciding whether to invest n thecompany or not.3.The public gets goods and services at reasonableprices.
Benefits To The Governments:1. The bills at cost plus profit submitted to the governmentare settled without dispute.2. The government can fix prices of essential commodities. 3. The subsidies can be decided after studying the cost andselling price government wants to fix.4. It helps in fixing the export price for commodities.5. The income tax and other tax authorities accept thereports submitted by the auditors.
Through auditing has many advantages but the effectiveness of thisdepartment depends on the following limitations:1.Qualification: The auditors must be well qualified and they mustknow their job perfectly.2.Experience: The prior experience of auditing is very essential toaudit the accounts accurately.3.Independence: The auditor must be extended independence.That is why usually they are hired from outside. Even if internalauditor/employee are to be used then he must not work underaccounts department. In fact he should report to General Manageror Director of the company.4.Access To Records: The auditors must have an authority to haveany or all the documents, files, etc. for the purpose of auditing.5.Safety: The auditor must not feel unsafe or submitting adversereports on the organization in general or any department inparticular.6.Adequate Staff: There should be adequate number of persons to
External Audit/Statutory Audit/Compulsory Audit:It is a compulsory audit done by outside agency at least once, at least once, atthe end of the financial year. As per SEBI guidelines public limited companies arerequired to have the companies accounts after every three months. Onlyregistered Chartered Accountant Auditors are authorized to audit the accountsand sign it.The following are the reason to have statutory auditing:1.All public limited companies must have their accounts auditing by externalauditors.2.All government departments and Government owned companies must gettheir accounts audited from external Government approved auditors(usually A.G.Office).3.All Government funded organizations, corporations, societies; corporationmust get their accounts audited.4.All registered societies, which collect donations from public, must get theiraccounts audited from external auditors.5.Any company which intends to borrow money from government or financialinstitutions must get their accounts audited.6. Any other company may be asked to get their accounts audited from externalauditors.
The auditing for hotels differ from the type, size of thehotel. The degree of mechanization has a great impact onthe auditing of hotel. The auditors must examine the systemor internal check in vogue with regard to the ordering,purchase, receiving, storing, issuing, etc. He is also expectedto check the system of book and record keeping in vogue inthe hotel. The cash books receipt and payment side must bechecked and tallied with check books. All cuttings,overwriting, discount, allowances, missing checks, etc. mustbe examined. All receipts must be made against the properprinted and signed receipts and should be entered either inthe sales summary sheets or cash book.
As far as possible no cash payments should be madeexpect payments made by petty cashier. Salaries andwages must be paid by cheques after receiving thebills from personal department and attendance fromTime Office and the concerned departments. Chequesshould be issued to suppliers against their bills alongwith the supply order, invoice, store keeper’s receipt,etc. please also refer to previous chapter for moredetails.
NIGHT AUDITING IN HOTELS:Each hotel appoints a night auditor who worksindependently and reports to either Chief Accountant orto General Manager. His duty starts after 9 p.m. andworks until next day morning. Due to his night workinghours he is termed as Night Auditor. He audits theaccounts of Front Office Cashier.
He performs the following duties:1.Reconcile all sales statements submitted by the variousdepartments cashiers to front office cashiers throughout the day.2.He verifies all the debit and credit vouchers at Front Office Cash.3. Checks guest folios.4. Verifies front office cashier reports.5. In some hotels he is also required to post the un posted vouchersat Front Desk and also debit all rooms with the day’s room tariff.6.In case of Cash Register Machine (like N.C.R. Cash Registrex, etc.)He clears the machine.7.Prepare a statement of bills for those rooms whose bill crosses aspecified amount.8.He audits night receptionist’s room reports.9.He checks the accuracy of accounts like over charging, undercharging, cutting, discounts, allowances, etc extend to guests.10. He checks the City Ledger Account before transferring toAccount Department for collection of bills.