Auditing

1. MEANING & DEFINITION OF AUDITING
• The term ‘audit’ derived from the Latin word
‘Audire’ which means to hear
• Systematic and scientific examination of the
books of accounts of a business by an
independent person qualified for the job.
• It is a thorough examinations of the books of
accounts of a business by an independent
qualified person for reporting to the owners
about the genuineness & accuracy of accounts
and financial statements.

2. Features of Auditing
• Systematic and scientific examination
• By an independent person qualified
• Examination on the basis of documentary
evidences
• Verify the accuracy, authenticity, genuineness
and truth of transactions.
• Made periodically or throughout the year
• Auditor has to report the findings to the
owner of the business

3. Scope of Auditing
• Originally auditing was only cash audit.
Objective was to detect the errors and frauds
in cash receipts and cash payments
• After industrial revolution, auditing became
the critical examination of all books of
accounts
• Now it covers financial audit, cost audit and
management audit

4. Difference between Book-keeping & Accounting
Book-keeping
• Recording of business
transaction
• Work is routine,
mechanical & clerical
• Precedes accounting
• It does not require any
special skill
• Done by book-keepers
Accounting
• Recording, classifying,
summarizing etc
• Work is complicated &
technical
• Starts after b/k
• It require the knowledge
of accounting principles
• Done by accountants

5. Book-keeping Vs Auditing
Book -keeping
• Recording of business
transactions
• Constructive in approach
• Work is mechanical
• It precedes auditing
• Done by book-keepers
• BKs Need not be qualified
• Done throughout the year
• Done by employees of the
firm
Auditing
• Examination of books of
accounts
• Analytical in approach
• Work is technical
• It starts after B/K ends
• Done by auditors
• Auditor must be qualified
• Done yearly or periodically
• Done by independent
persons

6. Accounting Vs Auditing
Accounting
• Recording, classifying &
summarizing bus transn
• It precedes auditing
• Constructive
• Done by accountants
• Accountants need not be
qualified
• Object is to ascertain the
trading result and financial
position
• An accountant need not known
the audit work
• A is an insider
Auditing
• Examination of books of
accounts
• It starts after accounting
• Analytical
• Done by auditors
• Auditors must be a qualified
person
• Object is to verify the
correctness of results and
financial position
• Auditor must know both
accounting & audit work
• A is an outsider