This document discusses various aspects of auditing including types of errors, objectives of auditing, duties of management and auditors. It explains errors of omission, commission, compensating errors and duplication. It also discusses window dressing, materiality, indicators of going concern, and requirements for true and fair view as per auditing standards.

1. SEMISTER-VI
75 MARKS

2.  NEED FOR INFORMATION TO DIFFERENT TYPES
OF USERS
 Who???
 Owner
 Employees
 Lenders
 Creditors
 Customers
 Government

3.  Relevant Statutory Requirement
Eg.Companies Act 2013.
 Accounting Standards issued by ICAI
Eg.SA 210,SA 570
 Guidance Note issued by ICAI
Eg.
THIS REQUIREMENTS ARE KNOWN AS FINANCIAL
REPORTING FRAMEWORK.

4.  BALANCE SHEET
 STATEMENT OF PROFIT AND LOSS
 CASH FLOW STATEMENT
 STATEMENT AND EXPLAINATORY NOTES WHICH
FORM PART THEREOF AND
 SUPPLEMENTARY SCHEDULES AND
INFORMATION BASED ON SUCH STATEMENTS.

5.  AUDITOR
He is responsible for
forming &
expressing his
opinion on Financial
Statements.
 MANAGEMENT
-Preparation of FS
-Maintenance of
Adequate
Accounting records
& Internal Control
-Selection &
Application of
Accounting Policies
-Safeguarding Assets
of Enterprise.

6.  ICAI
Auditing is defined as Systematic &Independent
Examination of
a)Data c)Operations e)Statements
b)Records d)Performances (financial or otherwise)i
Of an Enterprise for a stated purpose.
(General Guidance on Internal Auditing)

7.  Basic Object
TRUE & FAIR VIEW
Financial Position
& Operating
Results
 Incidental Objects
DETECTIONS OF
ERRORS & FRAUDS
Financial
Statements in
vouching &
verification

8.  INTERNAL AUDITING
-to examine the accounts to ensure that records are properly
maintained
-to ensure asset of concern are safeguard.
-to check the policies and procedures laid down by magement
are complied with
-to review the operations of concern to report on the efficiency
of management.
 COST AUDIT
-cost statements tally with cost records AND give true & fair
view of cost of production and cost of marketing of the
products.
 TAX AUDIT
-Income of concern computed in accordance of provisions of
Income Tax Act

9.  A:ERRORS OF
PRINCIPAL
 B:CLERICAL ERRORS
1.ERRORS OF
OMISSION
2.ERRORS OF
COMMISION
a)Mathematical Errors
b)Casting Errors
c)Posting Errors
3.COMPENSATING
ERRORS
4.ERRORS OF
DUBLICATION

10.  When transaction is not recorded according
to basic principals of accounting.
 When debit & credit given to wrong head.
 The error do not affect trial balance but
affect true and fair view of accounts.
 Accounts showing misleading picture of
assets,liabilities,profit and loss of concern.
Eg.Treating Revenue Expense as Capital
Expense & vice versa.

11. ERRORS OF OMISSION ERRORS OF COMMISSION COMPENSATING
ERRORS
ERRORS OF
DUPLICATION
Transaction Omitted
from BOA
Transaction entered in books
but wrongly
Effect of 1
error
compensated
by another
error
Transaction is
recorded
Twice in the
books
Partial Omission-Yes
Wholly Omission-No
1.Mathematical Errors -No
2.Casting Errors -Yes
3.Posting Errors - No
No No
Payment not entered in BOA 1.Mathematical Errors
Sales Bill 100 No*10=1000
Recorded as 10,000 in BOA
2.Casting Errors
Totalling ,Carry Forward
3.Posting Errors
Sales Bill of Mr.A recorded in Mr.B
Sales Bill No.24
for Rs.1000 on
A is posted into
B Ac & another
sales bill of 42
of B recoded in
A account of
same amount.
Sales Bill of
5000 recorded
twice in BOA
1.Confirmation of Bank
Account
2.Vouching cheque casting
3.Srutiny of Creditors Ac
4.Confirmation of Creditors
Balances
1.Scrutiny of Party Ac
2.Confirmation from Party
3.Casting totals of Register
4.Comparison with previous years
figures.
5.Reconciliation
1.Vouching-
Check Bills
2.Obtain
Confirmation
1.Vouching
2.Scrutiny of
Ledger Ac
ERRORS OF OMISSION ERRORS OF COMMISSION COMPENSATING
ERRORS
ERRORS OF
DUPLICATION
Transaction Omitted
from BOA
Transaction entered in books
but wrongly
Effect of 1
error
compensated
by another
error
Transaction is
recorded
Twice in the
books
Partial Omission-Yes
Wholly Omission-No
1.Mathematical Errors -No
2.Casting Errors -Yes
3.Posting Errors - No
No No
Payment not entered in BOA 1.Mathematical Errors
Sales Bill 100 No*10=1000
Recorded as 10,000 in BOA
2.Casting Errors
Totalling ,Carry Forward
3.Posting Errors
Sales Bill of Mr.A recorded in Mr.B
Sales Bill No.24
for Rs.1000 on
A is posted into
B Ac & another
sales bill of 42
of B recoded in
A account of
same amount.
Sales Bill of
5000 recorded
twice in BOA
1.Confirmation of Bank
Account
2.Vouching cheque casting
3.Srutiny of Creditors Ac
4.Confirmation of Creditors
Balances
1.Scrutiny of Party Ac
2.Confirmation from Party
3.Casting totals of Register
4.Comparison with previous years
figures.
5.Reconciliation
1.Vouching-
Check Bills
2.Obtain
Confirmation
1.Vouching
2.Scrutiny of
Ledger Ac

12.  Check the totals of Both the sides of the Trial
Balance.
 Check that accounts which normally show
debit balances (Assets & Expenses)and
accounts which normally show credit
balances(Liabilities & Income).
 Check ½ the amount of Difference of Trial
Balance.
 Check Difference in Trial Balance Divisible by
9.
 Go back steps involved in preparing the Trial
Balance.

13. MEANING Intentional misrepresentation of Financial Information by
management ,
employees or Third Parties . It is a deliberate and mala fide act to
cheat or deceive someone.
MANIPULATION,
FALSIFICATION OF
RECORDS
1.No Recording Transactions
2.Recording Dummy Transactions
3.Misapplications of Accounting Policies
MISAPPROPRIATION OF
CASH
1.From Cash Received A)By not recording cash received. B)By
teaming and leading.
2.From Cash Payments –Recording Dummy & Excess Payment
3.From Cash Balance -Cash may be stolen or embezzled out of cash
in hand laying in cash box.
MISAPPROPRIATION OF
GOODS
1.From Goods Received-Not Recording Goods Received
2.From Goods Despatched-By Recording Dummy or excess sales.
3.From Stock in Hand – Goods may be actually stolen out of stock in
hand laying in warehouse.
TEEMING AND LADING This is term used to describe attempts to hide the loss of cash
received from one customer by using cash received from another
customer to replace it.

14. Why Window
Dressing is Done?
How Window
Dressing is
Done?
Objections of
Window Dressing
Auditors Duty
Regarding Window
Dressing
1.No True & Fair View 1.Disclosure in Audit
Report
1.Mislead Investors
& Lenders
1.Overstatement
of Assets
2.Shareholders Suffer 2.Report to Central
Government.
3.Hides Inefficiency
of Management
3.Verify Income
2.Hide Losses 2.Understatemen
t of Liabilities.
4.Fraud Management 4.Verify Assets &
Liabilities
5.Against Companies
Act ,2013.
5.Verify Provisions
3.Higher
Commission
6.Verify Closing Stock
7.Disclose change in
Method of Accounting

15. WHY HOW OBJECTIONS AUDITORS DUTY
1.No True & Fair View 1.Disclosure in Audit
Report
1.Mislead
Competitors
1.Overstatement of
Liabilities.
2.Shareholders Suffer 2.Report to Central
Government.
3.Undue Benefit to
Management
3.Verify Income
2.Hide Abnormal
Profits
2.Understatement
of Assets.
4.Fraud by Management 4.Verify Assets &
Liabilities
5.Against Companies Act
,2013.
5.Verify Provisions
3.Fraud 6.No check on assets. 6.Verify Closing Stock
7.No Insurance claim 7.Disclose change in
Method of Accounting
4.Legally Allowed
to Banks
8.Prevent Omission of
Liabilities
9.Disclose Bad Debts

16.  Quality of Management
 Unusual Pressures on the Concern
 Unusual Transactions
 Problems in Audit

17.  Basic Responsibility of Management
 Incidental Objective of Audit
 Possibility of Non-Detection
 When Circumstances Indicate Error and Fraud
 Report to Central Government
 CARO 2015

18.  Assurance of True & Fair of Accounts
 True & Fair Balance Sheet
 True & Fair P & L
 Tally with Books
 As per Law
 As per standard Accounting & Auditing Practices
 Disclose all material facts
 Detection & Prevention of Errors & Frauds
 Moral Check On Employees
 Advice on System, Taxation ,Finance
 Facilities Comparison
 Different Users

19.  An auditor can not check each and every transaction.
 Audit evidence is not conclusive in nature.
 No absolute certainty.
 An auditor cannot be expected to discover deeply laid
frauds.
 Auditor cannot assure the user of accounts about the
future profitability ,prospects ,or efficiency of the
management.
 Misstatement remain undiscovered.
 Auditor has to relay upon expert.(Valuation of Assets)
 An auditor is supposed to be but may not be
independent.
 Financial statements through audited, have their
inherent limitations.

20. Documentation
Planning
Audit Evidence
Accounting System &
Internal Control
Audit Reporting

21. Information is material if its misstatement(i.e.
Omission or wrong statement)could influence
economic decisions of users.
Legal
Requirements
Professional
Requirements
When even a
small amount is
considered
material.
Materiality of
an amount
for True &
Fair View
1 Material Items Extraordinary
Items
Cumulative Effect P&L Ac
2 Non-recurring
Items
Ordinary Items Law Balance Sheet
3 Percentage Cut
offs
Prior-period
items.
Statutory Limit Offsetting &
Grouping
4 Previous year
figures
Changes in
Accounting
Policies
Low Profit & Loss Nature of Item
5 Quantitative
Information
Margin of
Insolvency
Relevant
6 Unexpected Both P& L &
BS items.

22.  Relevance for auditor
 Indicators of absence of Going Concern
a)Financial b)Operating c)Other Indicators
 Auditors Duty
 Audit Report
 Companies Act ,2013.
 Examples

23.  SA 200A
 Confirm to financial Reporting Framework.
 No window dressing OR secret reserves.
 Disclose all material facts
 Comply with Laws Governing Companies,
Societies.
a)S.129 b)Accounting Standards c)Sch.III
d)S.143

24. 1. SA 200
2. Independent Judgement
3. Useful Audit
4. Independent is a state of mind and
character.
5. Auditor should not only be independent,
but also appear to be independent.
6. Provisions under Companies Act 2013.
7. Provisions under Chartered Accountants
Act.