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Advantage of audit

1 Errors and frauds are locked at an early date and in future no attempt is

made to commit such frauds or one is rather careful not to commit an

error or a fraud as the account are subject to regular audit.

2 The auditing of accounts keep the accounts clerks regular and vigilant as

they know that the auditors would complain against them if the accounts

are not prepared up-to- date or if there is any irregularity.

3 In case of fire ,the insurance company may settle the claim on the basis of

the audited accounts of the previous years.

4 Money can be borrowed easily on the basis of previous audited balance

sheet.

Advantage of audit...

5 If the business is to be sold as a going concern,there will not be much

difficulty regarding the valuation of assets and good will as the accounts

have already been subject to audit by an independent person.

6 income tax authorities generally accept the profit and loss account which

has been prepared by a qualified auditor and they do not go details of the

account.

7 The management may consult the auditor and seeks his advices on

certain thchnical points although it is not the duty of an auditor to give

advice.

Advantage of audit...

8 If the accounts have been prepared on a uniform basis , account of one

year can be compared with other years if there is any discrepancy ,the

cause may be enquired into.

9 Audited accounts are conidered more or less correct by the sales tax

authorities.

10 In case of join stock company when owership is separated from

management audit of accounts ensure the shareholders.

11 In the event of admission of new partner,audit accounts will have facilitate

the formation of terms and conditions form joining the new partner

Advantage of audit...

12It is because of audit that the owner will be satisfied about the business

operation and working of its variors department

13Another advantage of audit is the verification of the books of accounts

which help in mantaining the records up to date all times

14Auditing is very useful in obatining the independent opinion of the auditor

about businesscondition

15Due to the fear of audit the work of accounting always remains upto date

and correct in all respects.

Classification of Audit

On the basis of legislative control.

On the basis of auditor vis a vis management.

On the basis of periodicity of audit.

On the basis of subject of audit .

On the basis of coverage of audit.

On the basis of manner of checking

Lagislativ Control

The statutory audit

The statutory audit is mandatory audit and which carried out each year by

appointed auditors, which is done by proper manner and contents of audit

report.

The goverment audit

The goverment audit is regard to the audit of goverment companies and public

sector undertaking ,the is appointed by central goverment on the advice of

C&AG. The auditor submits his report to C&AG who comments on it and

placed it before parlament.

private audit

In case of private audit there is no statutory or constitutional compulsion to get

the account audit

Relation of Auditor vis a vivManagement

External audit

The audit is said to be external if the appoinment of auditor is made by persons

other then those whose performance is evaluated by auditor.

Internal audit

On the other hend an audit is said to be internal when the auditor is appointed

by persons who are responsible for the entity . An internal auditor usually

appointed by the management of a company.

Periodicity of audit

Financal audit

Financal audit is examination of financial statments to opinon on the truth and

fairnees of financial condition and operting results of the entity.

Cost audit

Cost audit is the audit of cost records of the company. It is checking of cost

accounts and costing techniques,methods followed by the entity.

Opertional audit

Opertional audit is review of opertions of opertions of an audit. It carried out

by the internal auditors . the auditors opertions of functional areas audit like

production , marketing, stores.

Management audit

Management audit is critical review of policy and practices audit of

management. It involves review of various process of management.

Coverage of Audit

Complete audit

In complete audit there is no restriction placed on auditor in matter coverage of

audit. The auditor checks up all books of accounts with connected records to

express opinion on the final financial statment.

Pertial audit

In caseof pertial audit usally the areas to be covered in audit are delimited by

specific agreement to thic effect.

Manner of checking

Standard audit:

Mr. Irish of australia defined standard audit in his book theory and practice of

auditing as" This embraces a complete check and analysis of certain items

and containgent upon effective internal check ,appropriate test checks on

remaining items,the whole of the work being in accord with general auditing

standard quite adequate to justify an unqualified opinion".

Form the defination it would appear the certain items in the accounts are

throughly checked and analysied and appropriate test checks are applied to

other items provide there is a good and effective internal check in operation

Manner of checking...

Balance sheet audit.

The term" balance sheet audit" means verification of the values of assets

,liabilities ,the balances of reserves and provisions and the amount of profit

earned ,or loss suffered by a firm during the year.

"Balance sheet audit is an American term which is capable of two meaning":

It means limited audit in which all the balance sheet accounts are verified and

tests imposed only on those profit and loss items which are directly related to

the assets such as repair and maintance ,dfepreciation or bad debts. Accounts

such as these are analysed ,but otherwise no detailed audit is cinducted.

In such a balance sheet audit tests are imposed on internal control but generally

for a specific period .In any case , the transactions for the closing months of

the year are closely scruinised. further tests include scrutiny of records,

comparsion of income and expense investigation of material flucation and

analysis of appropriation accounts.

Difference between Continuous audit and Interim audit

Continuous audit Interim audit

A continuous audit or a detailed audit asit is sometimes called is an audit whichinvolves a detailed examination of the ofaccount at regular intervals of say onemonth or three months

Some writers opine that an audit whichis called in between two annual auditswith a view to find out interim profit toenable company to declare an interimdividend, shuld called interim audit.

Continuous audit is carried on up to anydate according to the convenience of theauditor and his client.

Interim audit is up to a definite dateaccording to the instructions of theclient.

The verification of assets and liabilities isdone after the balance sheet has beenprepared at the end of the accountingperiod.

Interim audit the assets and liabilitiesare verified when such an audit isconducted

No trial balance is prepared though thetotals of certain accounts may be noted.

Interim audit the trial balance has to beprepared or checked.

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Continuous audit Interim audit

Continuous audit the object is not to know the profit or lose.

Interim audit is conducted with the object of finding the profit or the lose

It is an expensive system of audit. It is not an expensive system of audit.

Continuous audit is only satisfactory system of internal check is in operation

Interim audit is not satisfactory system of internal check is in operation.

The auditor visits his clients at regular intervals during the financial year.

The auditor visit his clients at the periodically

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Continuous audit Interim audit

It is easy and quick discovery of errors. It is not easy and quick discovery of

errors.

The clerks will be very regular in

keeping the accounts up to date any

time.

The clerks will not be very regular in

keeping the accounts up to date any

time.

It is more used in banking sector. It is used any institution.

Internal auditing and External auditing

Internal Auditing:The auditing activities of an organization done by an auditor whoappointed by that particular organization, for the purpose ofevaluating the adequacy & effectiveness of the organization’s systemof internal control as well as the quality of performance and makefinancial report and provide financial &operational information tothe management for taking managerial decision.

External Auditing:The auditing activities that clarify and justify the internal auditingreport for the purpose of making the report reliable to the stockholders and it’s others user.

“Internal audit” vs. “External audit”

Factors Internal audit External audit

Objective

Evaluating the adequacy

and effectiveness of the

organization’s system of

internal control

Verifies the truth fairness of

the financial information.

Appointment of

auditors

By management. By stock holders.

Relationship Part of the organization Not part of the organization.

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Factors Internal audit External audit

Independence The audit can be dominated by

the management.

The audit can’t curtail or

dominate by the

management.

Scope of work

Over all system finance,

accounts, operations, MIS and

decision making.

Accounts, profit & loss

a/c, balance sheet, annual

report and financial

system.

Primary client Management and Board

of directors.

Stock holders.

Time Coverage Continuous throughout

the year

Tend to be year ended

process.

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Factors Internal audit External audit

Legal

requirement

Generally not mendetory apart

from parts of public sector.

Essential for limited companies

and most public bodies.

Efficiency

of auditors

Have efficiency & knowledge

about company’s operation and

internal control.

Have less efficiency and

knowledge then internal

auditors.

Reliability of

audit report

Less then external audit. More then internal audit.