Advantage of audit1 Errors and frauds are locked at an early date and in future no attempt is made to commit such frauds or one is rather careful not to commit an error or a fraud as the account are subject to regular audit.2 The auditing of accounts keep the accounts clerks regular and vigilant as they know that the auditors would complain against them if the accounts are not prepared up-to- date or if there is any irregularity.3 In case of fire ,the insurance company may settle the claim on the basis of the audited accounts of the previous years.4 Money can be borrowed easily on the basis of previous audited balance sheet.
Advantage of audit...5 If the business is to be sold as a going concern,there will not be much difficulty regarding the valuation of assets and good will as the accounts have already been subject to audit by an independent person.6 income tax authorities generally accept the profit and loss account which has been prepared by a qualified auditor and they do not go details of the account.7 The management may consult the auditor and seeks his advices on certain thchnical points although it is not the duty of an auditor to give advice.
Advantage of audit...8 If the accounts have been prepared on a uniform basis , account of one year can be compared with other years if there is any discrepancy ,the cause may be enquired into.9 Audited accounts are conidered more or less correct by the sales tax authorities.10 In case of join stock company when owership is separated from management audit of accounts ensure the shareholders.11 In the event of admission of new partner,audit accounts will have facilitate the formation of terms and conditions form joining the new partner
Advantage of audit...12It is because of audit that the owner will be satisfied about the business operation and working of its variors department13Another advantage of audit is the verification of the books of accounts which help in mantaining the records up to date all times14Auditing is very useful in obatining the independent opinion of the auditor about businesscondition15Due to the fear of audit the work of accounting always remains upto date and correct in all respects.
Classification of AuditOn the basis of legislative control.On the basis of auditor vis a vis management.On the basis of periodicity of audit.On the basis of subject of audit .On the basis of coverage of audit.On the basis of manner of checking
Lagislativ Control The statutory audit The statutory audit is mandatory audit and which carried out each year by appointed auditors, which is done by proper manner and contents of audit report. The goverment audit The goverment audit is regard to the audit of goverment companies and public sector undertaking ,the is appointed by central goverment on the advice of C&AG. The auditor submits his report to C&AG who comments on it and placed it before parlament. private audit In case of private audit there is no statutory or constitutional compulsion to get the account audit
Relation of Auditor vis a viv Management External audit The audit is said to be external if the appoinment of auditor is made by persons other then those whose performance is evaluated by auditor. Internal audit On the other hend an audit is said to be internal when the auditor is appointed by persons who are responsible for the entity . An internal auditor usually appointed by the management of a company.
Periodicity of audit Financal audit Financal audit is examination of financial statments to opinon on the truth and fairnees of financial condition and operting results of the entity. Cost audit Cost audit is the audit of cost records of the company. It is checking of cost accounts and costing techniques,methods followed by the entity. Opertional audit Opertional audit is review of opertions of opertions of an audit. It carried out by the internal auditors . the auditors opertions of functional areas audit like production , marketing, stores. Management audit Management audit is critical review of policy and practices audit of management. It involves review of various process of management.
Coverage of Audit Complete audit In complete audit there is no restriction placed on auditor in matter coverage of audit. The auditor checks up all books of accounts with connected records to express opinion on the final financial statment. Pertial audit In caseof pertial audit usally the areas to be covered in audit are delimited by specific agreement to thic effect.
Manner of checking Standard audit: Mr. Irish of australia defined standard audit in his book theory and practice of auditing as" This embraces a complete check and analysis of certain items and containgent upon effective internal check ,appropriate test checks on remaining items,the whole of the work being in accord with general auditing standard quite adequate to justify an unqualified opinion". Form the defination it would appear the certain items in the accounts are throughly checked and analysied and appropriate test checks are applied to other items provide there is a good and effective internal check in operation
Manner of checking... Balance sheet audit. The term" balance sheet audit" means verification of the values of assets ,liabilities ,the balances of reserves and provisions and the amount of profit earned ,or loss suffered by a firm during the year. "Balance sheet audit is an American term which is capable of two meaning": It means limited audit in which all the balance sheet accounts are verified and tests imposed only on those profit and loss items which are directly related to the assets such as repair and maintance ,dfepreciation or bad debts. Accounts such as these are analysed ,but otherwise no detailed audit is cinducted. In such a balance sheet audit tests are imposed on internal control but generally for a specific period .In any case , the transactions for the closing months of the year are closely scruinised. further tests include scrutiny of records, comparsion of income and expense investigation of material flucation and analysis of appropriation accounts.
Difference between Continuous audit and Interim audit Continuous audit Interim auditA continuous audit or a detailed audit as Some writers opine that an audit whichit is sometimes called is an audit which is called in between two annual auditsinvolves a detailed examination of the of with a view to find out interim profit toaccount at regular intervals of say one enable company to declare an interimmonth or three months dividend, shuld called interim audit.Continuous audit is carried on up to any Interim audit is up to a definite datedate according to the convenience of the according to the instructions of theauditor and his client. client.The verification of assets and liabilities is Interim audit the assets and liabilitiesdone after the balance sheet has been are verified when such an audit isprepared at the end of the accounting conductedperiod.No trial balance is prepared though the Interim audit the trial balance has to betotals of certain accounts may be noted. prepared or checked.
Continue... Continuous audit Interim auditContinuous audit the object is not to Interim audit is conducted with theknow the profit or lose. object of finding the profit or the loseIt is an expensive system of audit. It is not an expensive system of audit.Continuous audit is only satisfactory Interim audit is not satisfactorysystem of internal check is in system of internal check is inoperation operation.The auditor visits his clients at regular The auditor visit his clients at theintervals during the financial year. periodically
Continue...Continuous audit Interim auditIt is easy and quick discovery of errors. It is not easy and quick discovery of errors.The clerks will be very regular in The clerks will not be very regular inkeeping the accounts up to date any keeping the accounts up to date anytime. time.It is more used in banking sector. It is used any institution.
Internal auditing and External auditing Internal Auditing:The auditing activities of an organization done by an auditor whoappointed by that particular organization, for the purpose ofevaluating the adequacy & effectiveness of the organization’s systemof internal control as well as the quality of performance and makefinancial report and provide financial &operational information tothe management for taking managerial decision. External Auditing:The auditing activities that clarify and justify the internal auditingreport for the purpose of making the report reliable to the stockholders and it’s others user.
“Internal audit” vs. “External audit”Factors Internal audit External audit Evaluating the adequacy Verifies the truth fairness ofObjective and effectiveness of the the financial information. organization’s system of internal controlAppointment of By management. By stock holders.auditorsRelationship Part of the organization Not part of the organization.
Continue... Factors Internal audit External auditIndependence The audit can be dominated by The audit can’t curtail or the management. dominate by the management. Over all system finance, Accounts, profit & lossScope of work accounts, operations, MIS and a/c, balance sheet, annual decision making. report and financial system.Primary client Management and Board Stock holders. of directors.Time Coverage Continuous throughout Tend to be year ended the year process.
Continue... Factors Internal audit External auditLegal Generally not mendetory apart Essential for limited companiesrequirement from parts of public sector. and most public bodies.Efficiency Have efficiency & knowledge Have less efficiency andof auditors about company’s operation and knowledge then internal internal control. auditors.Reliability of Less then external audit. More then internal audit.audit report