In this article we are going to discuss about Auditing History, Meaning, Definition, Nature, Scope, Objectives of Auditing. This article is very usefull for study of various examinations and also helpful for growing knowlege regarding auditing concept. We can see the above points in details. Lets come to the points.
Auditing History/Auditing Origin
Ankekshan’ is the Marathi translation of the word ‘auditing’ and Ankekshan also has synonyms like audit, accounting etc. Although accounting has acquired a very broad, advanced and professional form today, accounting began a long time ago.
The English word ‘Audit’ is believed to be derived from the Latin word ‘Audire’.
The word ‘Audair’ means ‘to hear’. Even in earlier times, accounting practices were very different from today’s practices. Written accounts used to be read to an experienced and expert person and that expert person would listen to the account and give his opinion and judgment regarding that account. In this way, the word ‘Auditor’ was derived from the word ‘audiver’ which means ‘one who listens’. A person who listens to the accounts of those whose accounts are to be audited and in this manner gives an opinion and decision after checking the books of accounts is an ‘auditor’ and the work done by such an auditor is considered as ‘auditing’.
It was not until 1913 that the accounts of companies were audited by an auditor in India. In the year 1913, under the Companies Act, accounting or auditing of companies was made compulsory. The Companies Act of 1913 laid down the powers, duties, qualifications, qualifications etc. of auditors.
Provincial governments were empowered to issue certificates to qualified persons for audit work. In the year 1918, the government of Bombay province first started the course of ‘Government Diploma in Accountancy (G.D.A.). Holders of this qualification are considered qualified to practice auditing and are allowed to practice the profession of auditor anywhere in India.
In the year 1932, the central government took control over the deposit and expenditure business through the Auditor Certificates Rules, 1932, and it was made necessary to obtain a certificate of a registered accountant for the business of auditing. Indian Board of Accounts was established.
The Chartered Accountants Act was passed in 1949. The Institute of Chartered Accountants was established under the Accounts Act of the Lok Sabha. This organization regulates and controls the business of deposit and expenditure, accounting and auditing. Through this organization, the exams of chartered accountants are conducted and the required certificates are also given to them.
What is Meaning of Auditing
“An audit is an examination of the books to ascertain the financial integrity of a business or organisation.” – Dr. Ajinath head
“Audit relates to examining and reporting on the books and original documents of a company or other institute for the purpose of checking and ascertaining the truth and results of financial transactions of that business or organization.” Mont Gomery
What is Nature and Scope of Auditing
The audit includes the following:
(1) Authenticity / correctness of various things
While auditing, the mathematical correctness of the accounts, books of accounts, various accounts of the concerned institution, business or organization is checked.
(2) Transaction registration
It is ensured that every financial transaction is properly recorded in the ledger.
(3) Enrollment in appropriate account
Ensuring that all entries in the career are recorded in the appropriate account or ledger.
(4) Addition, subtraction check
Checking all totals, deductions, account balances etc. of various accounts in Kirdi and Khatavani.
To ensure that the documents, documents, certificates, receipts etc. filed for the accounts, are properly and legally prepared.
(6) Verification of documents
Checking the balance sheet, profit and loss statement, balance sheet etc. to ensure that all such sheets are correct and correct.
(7) Verification and Evaluation
To verify and evaluate liabilities and assets and liabilities in the balance sheet.
(8) In case of any doubt regarding the transaction, to investigate the matter to the satisfaction and satisfaction.
After completion of the audit work, submit the audit report to the concerned and give proper certificate.
What are the Objectives of Auditing
(a) Main Objectives :
(1) To encourage efficiency and accuracy in accounting.
(2) To ascertain the veracity of the annual accounts :
The auditor should carefully examine the trading and profit and loss account and balance sheet of the business to ensure that the profit and loss account shows the actual amount of profit earned by the business during the relevant period and the balance sheet gives a true picture of the financial position of the business. This is the most important purpose of audit.
(3) To ensure that accounts are regularly maintained :
The purpose of audit is to see that the accounts of the business are maintained in accordance with the practice of the business concerned and the rules applicable to that business and that there are no irregularities.
(b) Secondary Purpose :
(1) Detection of errors in accounting :
While writing the accounts some mistakes are made by the employees unknowingly. For example, writing the same transaction twice or not recording a transaction or marking it with a wrong amount. Sometimes theoretical mistakes are made due to insufficient knowledge of accounting rules or other reasons. For example, not charging revenue and capital expenditure properly while preparing profit and loss account. All such errors affect the annual accounts of the business. One of the purposes of audit is to detect errors in accounting so that the annual accounts are accurate.
What are the Types of Errors in Auditing
(a) Errors of Omission :
When a transaction is not recorded in the original book or it is for a small amount, the error is called ‘error of omission’. Such errors occur unintentionally, i.e. a transaction is inadvertently left unrecorded. For example, under-recording of credit sales, under-recording of payables, under-recording of goods purchased at the end of the year.
(b) Clerical Errors or Errors of Commission :
Generally, the mistakes that arise in the records, calculations can be called as ‘clerical errors’. These errors include the complete or partial misrepresentation of a transaction. These types of errors are of the following types:
(1) Cutting on the wrong side
(2) Deducting by wrong amount
(3) Debiting a wrong account
(4) Incorrect account balance withdrawal
(5) Entry of wrong amount in Subsidiary Book of original entry
(c) Errors of Principles :
Any business transaction should be recorded as per the rule of double entry bookkeeping. But the mistakes which are made without following those principles while recording the transaction, can be called as ‘Principal mistakes’. Accounting by a person who does not have a thorough understanding of accounting is prone to theoretical errors. These errors do not affect the balance sheet; Because that transaction is recorded somewhere; But it affects the profit and loss account and the balance sheet.
D) Compensating Errors
If an error occurs in one account and at the same time an error of the same amount occurs in another account on the opposite side, it is called complementary error. Errors which complement each other and cancel out the effect of each other are called compensatory errors.
(e) Other Errors
This includes errors occurring twice and errors caused by the same name.
(2) To discover fraud, deceit, fraud in accounts :
Mistakes are caused by inadvertence or ignorance of the rules and can be avoided by working carefully. But forgery, deceit or afratfar is deliberate, intentional with intent to endanger the owner. Inspite of adequate knowledge of accounting rules, the employee deliberately makes false entries for self-interest, fraud or misappropriation of money. The objective of audit is to detect such fraudulent or fraudulent transactions.
What are the Types of Frauds
Deliberate wrong entries are called Afratfar.
- Extortion of money
Cash flow includes sales flow, purchase flow, cash flow. Mistakes made knowingly about money in all departments are called money afratfar.
- Misappropriation of Goods:
The embezzlement of goods is much more difficult than the embezzlement of money, as goods are not as easily stretched as money. In general, a business that manufactures high-value and light-weight products has a lot of room for churn. Uncovering the smuggling of goods is a very difficult task. For this, a thorough inspection of the stock register and actual counting of the stock against its entries in the register can reveal such irregularities.
- Falsification of Accounts :
The third way of fraud is to write or prepare false accounts by creating false documents. There is no real loss as there is no exchange of money or goods. But it cannot be done without the connivance of Afaratkar senior officials who cannot understand the true and real nature of the business. This is why uncovering such fraud is such a daunting task.
Accounting fraud is done for two purposes:
(a) Do not show too much
(b) Understatement of profit
(3) Curbing falsehood, afratfar:
An auditor’s work does not end with just detecting fraudulent transactions. The purpose of an audit is to examine the accounts and take preventive measures to suggest improvements in the accounting system or method so that such fraudulent transactions do not recur in the future.
(4) Controlling effect on accounting department staff :
The purpose of auditing is to exert such a controlling influence on the accounting staff that they will do their work more carefully and avoid fraud or embezzlement, knowing that the accounts they have written are going to be scrutinized by another person.
(5) Satisfying Government Officials :
The officials of various government departments like income tax, sales tax have to take business accounts as a basis while doing their taxation work. These officers have to ensure that the revenue of the government is not lost due to falsification in these accounts. These officers do their job assuming that the accounts are correct if they are audited. Therefore, one of the objectives of the audit is to satisfy the government officials.
(6) Help in future policy making :
The future strategy of every business is based on the information and conclusions drawn from its past accounts. The accounts are audited to ensure that the information on which important decisions regarding the future of the industry are based is correct. Auditing is useful for making future decisions of a business organization.
So these are the Auditing History / Auditing Origin, Meaning and Definitions of Auditing, Nature and Scope of Auditing, Objectives of Auditing, Types of Errors and Frauds in Auditing.