The word “audit” comes from the Latin word audire, meaning
According to R. K. Moutz, "Auditing is concerned with the
verification of accounting data with determining the accuracy and
reliability of accounting statement and record.“
An audit is the examination of the financial report of an
organization - as presented in the annual report - by someone
independent of that organization.
Objectives Of Audit
Basic objective of auditing is to prove true and
fairness of results presented by profit and loss
account and financial position presented by
The main objectives of audit are known as
primary objectives of audit. They are as follows:
Examining the system of internal check.
Checking arithmetical accuracy of books of
accounts, verifying posting, costing, balancing
Verifying the authenticity and validity of
Checking the proper distinction of capital and
revenue nature of transactions.
Confirming the existence and value of assets
Verifying whether all the statutory
requirements are fulfilled or not.
Proving true and fairness of operating results
presented by income statement and financial
position presented by balance sheet.
Evolution of Auditing
To facilitate the examination of the historical
development of auditing, this review will be
divided into the following five chronological
Prior to 1840;
Prior to 1840
Generally, the early historical development of
auditing is not well documented . Auditing in
the form of ancient checking activities was
found in the ancient civilizations of China,
Egypt and Greece. The ancient checking
activities found in Greece (around 350 B.C.)
appear to be closest to the present-day
Similar kinds of checking activities were also
found in the ancient Exchequer of England.
Prior to 1840
When the Exchequer was established in England
during the reign of Henry 1(1100-1135), special audit
officers were appointed to make sure that the state
revenue and expenditure transactions were
properly accounted. The person who was
responsible for the examinations of accounts was
known as the “auditor”. The aim of such
examination was to prevent fraudulent actions .
According to Porter, et al (2005), auditing had
little commercial application prior to the industrial
Prior to 1840
This is because industries during this period were
mainly concerned with cottages and small mills
which were individually owned and managed.
Hence, there was no need for the business
managers to report to owners on their
management of resources. As a result, there is little
use of auditing.
In a nutshell, in the period pre-1840, the auditing
at the time was restricted to performing detailed
verification of every transaction. The concept of
testing or sampling was not part of the auditing
During industrial revolution practice of
auditing was emerged.
According to Braown (1962) large scale
operations, large factories and machine based
production were resulted form industrial
revolution and for that large amount of capital
The emergence of a “middle class” during the
industrial revolution period provided the funds
for the establishment of large industrial and
Innocent investors were liable for business failure. Then
the need for protection and this time was ripe for
profession of auditing to emerge
Under company’s act 1862, in 1900 statutory audit was
Porter, et al (2005) commented that in this period the
duties of auditor were influenced by the decision of court.
The audit objective was mainly detection of fraud and
It can be concluded that the role of auditors during the
period of 1840s-1920s was mainly on fraud detection and
the proper portrayal of the company’s solvency (or
insolvency) in the balance sheet
The growth of the US economy in the 1920s-1960s
had caused a shift of auditing development from
the UK to the USA.
Meanwhile, the advancement of the securities
markets and credit-granting institutions had also
facilitated the development of the capital market
in this period.
The concept of materiality (Queenan, 1946) and
sampling techniques (Brown, 1962) were used in
auditing during this period
It was not necessary to make a detailed
examination of every entry, footing, and
posting during the period in order to get
the substance of the value which
resulted from an audit.
In short, the social-economic condition
in the period had highly influenced the
development of auditing.
The major characteristics of the audit approach during this
period, among others, included:
(i) reliance on internal control of the company and sampling
techniques were used;
(ii) audit evidence was gathered through both internal and
(iii) emphasis on the truth and fairness of financial
(iv) gradually shifted to the audit of Profit and Loss
Statement but Balance Sheet remained important;
(v) physical observation of external and other evidence
outside the “book of account
1960s to 1990s
The world economy continued to grow in the
This period marked an important development
in technological advancement and the size and
complexity of the companies
The duties of auditors were to affirm the
truthfulness of financial statements and to
ensure that financial statements were fairly
In the earlier part of this period, a change in
audit approach can be observed from “verifying
transaction in the books” to “relying on
system”. Such a change was due to the increase
in the number of transactions which resulted
from the continued growth in size and
complexity companies where it is unlike for
auditors to play the role of verifying
transactions. As a result, auditors in this period
had placed much higher reliance on
companies’ internal control in their audit
1960s to 1990s
Risk-based auditing is an audit approach where
an auditor will focus on those areas which are
more likely to contain errors.
Similarly, auditors placed heavy reliance on the
advanced computing auditing tool to facilitate
their audit procedures. In addition to the
auditing of financial statement, auditors at the
same time were providing advisory services to
the audit clients.
Present-day auditing has developed into new
processes that build on a business risk
perspective of their clients
Presently, the ultimate objective of auditing is
to lend credibility to financial and non-
financial information provided by
management in annual reports.
High level of litigation and criticism against
the auditors observed.
Some of the key reform activities include:
The Sarbanes-Oxley Act (The US)
It outlines the rules on auditor
independence, for example, the control of
audit quality, and the rotation of audit
partners as well as the prohibition of
Ramsay report (Australia):
It was recommended that auditor independence
can be improved through the following ways:
Include a statement in the Corporations Act that
auditors are to be independent;
Require auditors to declare to the Board of
Directors that their independence is maintained;
Prohibit special relationships between the auditor
Establish an auditor independence supervisory
Establish an audit committee to oversee the
issue of non-audit services, audit fees, scope
disagreements and auditor-client relationships
In summary auditing first engaged in form of ancient
checking in China, Egypt, Greece.
The modern auditing established during industrial
Mid 1800 to early 1900 audit practice can be regarded
“traditional conformance role of auditing”.
Over the past 30 year or so auditor played an “enhancing
role” by enhancing integrity and credibility.
Today auditor not only enhancing integrity and
credibility also provide value added service.
It is evident that the paradigm of independent auditing
has shifted over the year.
History of Auditing in Bangladesh
The purpose of govt. audit is to ensure
transparency and accountability in the use of
resources in all types of govt. management.
The objectives of audit work includes
verification of statements of accounts and
statement of income and expenditure to
determine whether these are prepared truly
The major concerns in the context of public
financial management in Bangladesh have
always been to see how well the scarce
public resources are utilized
The stakeholder expect that the audit office
provide them with more information in the
line of 3Es
AUDIT IN BANGLADESH
In Bangladesh , the Office of the Comptroller
and Auditor General(C&AG) is the supreme
audit institution and it is the only body
entrusted to carry out the performance audit
The legal authority of C&AG to carry out the
performance audit derives from two main
TYPES OF AUDIT
Financial Audit: The purpose of conducting a financial
audit is to give an opinion on whether the financial
statement prepared by the public sector agencies shows a
true and fair view of the Financial position
Compliance Audit: Compared to a financial audit, it is
not compulsory for the compliance audit to be
conducted to all government agencies yearly. This type of
audit is performed on cyclical basis. In compliance
auditing , the Auditor General will examine and review
the transactions and activities of ministers/departments
or agencies to determine whether they have conformed
to all laws and regulations.
TYPES OF AUDIT
Performance Audit: The performance audit involves
studies and evaluation of specified programs or
activities of ministers/department and other
Advantages of Audit
1. Verification Of Books And Statement :-
The main object of audit is the verification of the books
and the financial statements of the company concerned.
2. Discover and Prevention Of Error :-
While examining the books, auditors detect some errors.
These are various kinds of errors. So audit is very useful in
preventing and detecting the errors.
3. Moral Check :-
When each staff of the company knows that this financial
transactions will be examined by the auditor then he fears
to do that fraud. The fear of their detection acts as a moral
check on the staff of the company
Advantages of Audit
4. Check On Directors :-
Audit acts a check upon the directors and precaution
against fraud on the part of the management.
5. Proper Supervision :-
Sometimes owner of the business can not look after
the business personally. Audit acts as a check on
employees and it saves the owner from losses.
6. Valuable Advice :-
The auditor has expert knowledge about the
accounts and finance problems, so he may be
consulted about these problems.
Disadvantages of Audit
The payment of audit fee brings extra cost burden to
During and audit the auditors requires the attention
several companies stuff and therefore cause
An audit doesn’t assure future viability of the
An audit doesn’t assure the effectiveness and
efficiency of management
Auditor express opinions and therefore doesn’t give
total assurance of the two fair presentation of annual
A review of the historical development of auditing has
shown that the objective of auditing and the role of
auditors are constantly changing as they are highly
influenced by contextual factors such as the critical
historical events (e.g. the collapsed of big
corporations), the verdict of the courts, and
technological developments (e.g. advancement of
computing systems and CAATs). It can be observed
that any major changes in these contextual factors are
likely to cause a change in the audit function and the
role of auditors. As a result, auditing is seen to be
evolving at all times.
However, it is important to note that the change in society’s
expectation and the response of the auditing profession
towards these changes are not always at the same pace. Hence
there is a natural time gap between the changing expectation
of the users and the response by the profession and due to
this time gap there arises what has been stated as the
expectation gap or audit expectation gap (Saha & Baruah,
2008). Even though the existence of such a natural time gap is
inevitable, Flint (1998) advises that auditors should be
sensitive to the changing expectation of the relevant groups
while at the same time containing these expectations within
the constraints of what is possible. He also claims that there
are inevitably economic and practical limitations on what an
audit can do, and this is something which those who wish the
benefit must understand.