The document defines auditing as an examination of accounting records to establish if they accurately reflect transactions. The objectives of an audit are to determine if the balance sheet and profit and loss statement present a true and fair view. Errors can be clerical, technical, or of principle and arise from omissions, duplications, or violating accounting principles. Frauds involve misappropriation of cash, goods, or account manipulation. Vouching tests if entries are genuine by examining receipts, payments, loans, and other transactions.

1. Dr.M.PREMANANTHAM
Asst.Prof.of Commerce(CA)
VivekanandaCollege
TiruvedakamWest– 625 234
Madurai

2. Definition
L.R.Dicksee defines, “an auditing is an examination
of accounting records undertaken with a view to
establishing whether correctly and completely reflect the
transactions to which they purport to relate.”

3. Objects of Audit
 Whether Balance Sheet is properly drawn up
 Whether Balance Sheet gives – true and fair view
of statement of affairs
 Whether Profit and Loss A/c. gives – true and fair view of
profit or loss for the financial period

4. ERRORS AND FRAUDS
Detection and Prevention
of Errors
- Clerical or Technical Errors
- Errors of Principles
• Clerical or Technical Errors
* Errors of Omission
* Errors of Commission
* Compensating Errors
* Errors of Duplication

5. Errors of Principles
 Arise due to violation of accounting principles.
 Check totals of Trial balance and subsidiary
books.
 Compare the item in trail balance of previous
year with current year.

6. Detection and Prevention of
Frauds
 Misappropriation of Cash
 Misappropriation of Goods
 Manipulation of Accounts
• Misappropriation of Cash
- omission of cash receipts
- entering less/more amount than actual
- examine salesmen’s report, counterfoils
of receipt book
- check the vouchers, wage sheets, salary
book, invoices regarding payments

7. • Misappropriation of Goods
- May occur by-Theft of stock
- check stock records, purchases and sales
- compare the percentage of gross profit
to sales
• Manipulation of Accounts
- Preparation of accounts to show
more/less profits or even loss –
there is no loss
- Done by higher officials
- Difficult for an auditor to detect such
fraud

8.  Objects of Manipulation of
Accounts
* Objects of showing more profits
- to earn more commission or bonus
- to sell shares at higher rate
- to obtain loans
* Objects of showing less profits
- to reduce or avoid payment of
income tax
- to purchase shares at low price

9. VOUCHING
Testing the truth of
entry appearing in the books
of original entry.

10. Objectives
All transactions have been
recorded in books of accounts.
No transaction – not connected
with business has been recorded.
All entries – genuine &
supported by evidences.

11. Vouching of Cash Transactions
Vouching the Receipts
- Omission of Cash
Receipts.
- Entering less Amount.
• Cash Sales
- Four copies of cash memos prepared by
salesman.
- Cashier should stamp as “cash received”.
- All statements should forwarded to
Manager.

12. • Receipts from Debtors
- entering less amount in counterfoils
than receipts.
- Teeming and Lading method of fraud.
- Ex: A’s Rs.100 misappropriated. And
B’s Rs.100 is entered in A’s A/c. and
continuous.

13. • Rent Received
- Lease Deeds/Agreements
- Counterfoils of receipts issued to the
tenants.
- Confirmation letter from tenants –
outstanding rent.
• Commission Received
- Counterfoils of receipts compared with cash
book.
- Commission a/c. checked with party’s a/c.
- Agreement with parties – terms and rates of
commission.

14. Vouching the Payments
• Cash Purchases
- Goods paid for – actually been
received.
- entries in cash book with cash memos
and Goods Inward Book.
• Payment to Creditors
- Examined with receipts issued by them.
- Balance due compared with invoices
received from them.

15. • Loans Granted
- Agreement with borrower – rate of
interest, due date, condition of payment,
etc.
- Any security for loans sanctioned.
• Insurance Premium
- New policy – policy documents, receipt of
premium paid/cover note.
- Renewal – premium receipt alone.
- Large number of policies – list of policies
.