The word audit is derived from the Latin word audire which means to listen. That is, by listening to the distribution of a work, to prove its veracity.
Audit means to check the correctness of the accounts, so that it can be clear whether they have been done correctly for the respective transaction or not.
Various methods of inspection of public accounts were in vogue in ancient times. In the Middle Ages, business owners used to get their accounts inspected by experienced and fair persons to know the truthfulness of their accounts. The same person who was appointed to investigate the accounts. It is called audit.
Receives full distribution of bookkeeping from the accountants, listening to the solutions given by them like a judge, used to comment on it, but in the present time where the person lacks time, there is cut-throat competition, it is the era of globalization. To be sure of the books of account whether they are certified or not, audit becomes mandatory.
Definition of audit
In the words of R.G. Williams, “Audit refers to the examination of books of business, accounts and enumerators, in order to ascertain whether the balance sheet has been prepared to give a true and fair view of the business.”
According to A.W. Henson, “Such an examination of entire articles is called audit. So that they can be trusted and the details given by them can be trusted.
According to Lawrence R. Dixie, “Audit is the examination of millions of accounts to make it clear that they were carried out to the fullest extent and correctly of related transactions.” Along with this, it can be ensured that all the deals are done in an official way.
Features of Audit
The features of audit are as follows-
1. Wide Area
In today’s era, the field of audit is not limited to business institutions only, but has expanded to areas like non-business government private, educational institutions, hospitals etc.
2. Science and Arts
Various forms of audit having multiple uses. It proves to be both science and art.
3. Objective of the investigation
The audit reveals whether the financial distribution position and profit and loss account of the organization and the proper picture of profit and loss of the organization are given through the books of accounts or not.
Millions of investigations are done by audit in a given time, mostly those period is the accounting year or financial year, more than this period of testing is called research.
5. Nature and Mode of Investigation
It should be prudent in nature, practical, critical and objective in order to meet the objectives of the audit. This certification is done through audit and verification.
6. Critical nature
Audit is not merely a test of the mathematical correctness of the books of accounts, but it also checks the technical correctness, completeness and correctness of the accounts. From the audit, it is known whether the accounting values of the books of account are in conformity with the principles and rules of the business organization concerned. This gives a clear and true picture of the business.
7. Subject Area
Along with the examination of the books of accountancy, there is also an examination of books related to the business of audit such as transfer of shares, action book, etc.
Audit is the examination of the books of accounts, the examination is done with the help of documents related to the practice and evidence.
9. Audit or Audit
The person who examines the books of account is called auditor or auditor. The auditor is an independent and impartial person. Which, being just an examiner, is not related to the creation of books of accounts.
There are three objectives of audit which are as follows-
1. Main Objective
The main objectives of audit are as follows-
(a) Scrutiny of books of account
The main form of the work of audit is to check the correctness of the books of account prepared by the organization. So that no errors are left in the accounts and at the same time the audit should check the correctness, validity, correctness and reliability of the certificates.
(b) Verification of Annual Statements
Annual statements mean the profit and loss account and balance sheet of the enterprise, in relation to the annual statements, the audit finds out through the profit and loss account whether it is real or not? Along with this, the economic balance sheet is presenting the correct picture of the economic condition of the business. or not? Thus, the audit has to clarify whether the financial statements of the equipment are showing the correct condition of the enterprise or not.
2. Auxiliary Purpose
The auxiliary objectives of audit are as follows:-
(a) finding errors
To know the truthfulness of the books of accounts, it is necessary to find out the errors in the books of accounts. Detection of errors in the books of accounts is not the main objective of audit. But keeping proper vigilance is the main function of audit. The audit should check for many types of errors efficiently.
(b) theoretical errors
If the general principles of bookkeeping and accounting are not followed properly while making an entry, then this type of error occurs. Sometimes such errors are made intentionally. Some examples of such errors are as follows-
1. Not making the right distinction between income and capital.
2. Accruing one income expenditure by mistake to another income and expenditure.
3. Write off the amount of expenditure and income in personal accounts.
4. Valuation of assets not according to principles.
(c) detection of frauds
Fraudulently means by deliberately writing false figures in the books of account with the intention of harming the business, making wrong entries and errors. So that the profit and loss account and position distribution of the business may not present a true and fair picture of the business situation. In most cases, fraud is done more cleverly, so it is not easy to detect it.
1. Sometimes the cash balance is left out of the trial balance and also it should be seen that the cash balance has been written off.
2. All subsidiary ledger methods should be checked and ensured that the totals of subsidiary books have been corrected and recorded in the accounts of the general ledger.
3. It is possible that the reason for non-receipt of trial balance may be due to errors in trial balance addition, so the amounts of trial balance items should be carefully checked and re-added.
3. Social and other purposes
(a) advising the managers
Being expert in checking audit accounts, it gives necessary and correct advice to the management of the organization in financial matters.
(b) Credibility of accounts and accounts
The use of audit builds the credibility of any company or business, thus increasing the credibility of the accounts.
(c) To make labor relations sweeter
Through audit, the errors in the books of account are clarified, as well as all the facts are exposed, a sense of trust is created between the workers and the owners.
(d) moral impact on the employees
When the employees know that the accounts will be audited at the end of the year when it shows integrity, devotion to duty and proper work, thus the audit has an ethical effect.
Benefits of audit
The advantages of audit are as follows-
1. Advantages of Auditing to Sole Business
The advantages of auditing a sole business are as follows:
(a) assistant in the assessment of death-tax
After the death of a sole proprietor, the audit will prove to be very helpful in determining that death tax is levied in special circumstances. A new partner can be easily taken on the basis of audit accounts.
(b) to produce as evidence in court
If the business transaction has to go to any court, in this case audit accounts can be presented as proof.
(c) increase in credit
Although it is not necessary to have audit for sole business, but by conducting audit, the credibility of the organization increases.
(d) Facilitates comparative study of annual accounts
Solely business gains profit by comparing one year with another through audited accounts. The expenditure on which post is more in the current year than in the previous year.
2. Benefit from audit to partnership entity
A partnership organization has the following advantages from audit:
(a) Facility to share on dissolution
Audited accounts prove helpful in determining the share to be received by his representative after the death of a partner. Because the audited accounts are trusted only through the successors.
(b) helpful in profit sharing
Simple differences arise in the sharing of profits in a partnership. If the accounts are regularly audited, the disputes over the question of profit are reduced.
(c) on the arrival of new partners
New partners have to pay capital and goodwill to come into the partnership organization. The amount of capital and goodwill can be easily determined through audit accounts.
(d) Facility on retirement of partners
The retiring partners get a share in the goodwill capital profits of the company. If the accounts are audited, then the partner’s share will be there.
3. Benefits to the Company from Audit
The company has the following advantages from audit:-
(a) Compulsory audit for the company
Audit is important for the company, with the help of this it has been made mandatory by the government to audit the accounts of the company.
(b) Fair rate of dividend
The auditor has to state in his report that the company has distributed the dividends at the correct rates.
(c) Ease of raising capital
Companies issue statements with audited accounts at the time of need of capital, which are then invested by the investors in the company.
4. Benefit to other persons
In respect of any litigation, the court can give its decision by relying on these audited accounts.
With the help of certified accounts for lending, the bank can take the decision of lending.
(c) cost price
Audited accounts help a lot in the purchase situation of the organization and there is no difficulty in finding out the purchase price.
(d) insurance company
Audited accounts give insurance companies confidence that the claim made by the organization is true.
(e) Government officials
The officers use certified accounts while levying wealth tax, income tax and sales tax.
(f) benefit to the nation
The nation also benefits through audit, the activities of such institutions are also known in the audit report, which are misusing the national resources and are working against the policies of the public welfare of the nation, successful, unsuccessful attempts are made from the audit report. And if the traders working dishonestly are detected, those companies can be closed for the interest of the country. Whose condition is not good.
Meaning of Audit Program
The audit program is a detailed and written plan within which a complete outline of the work of the audit is given. This is such a plan. On the basis of which the audit does its work, the audit program is already prepared, this is called the audit program.
Definition of audit program
According to Howard Stetler, “Audit is the outline of all the procedures to be followed to form an opinion about the financial details of the employer.”
In the words of Arthur W. Holmes, “An audit program is an elastic, planned method of investigation.”
W.W. According to Whig, “In order to bring about uniformity and to decide whether the entire work of accounting should be audited, a program is prepared which is called audit program.”
The features of the audit program are as follows-
Every item in the audit schedule should be clear. The audit program should be such as to provide its employees who can make a significant contribution to the process of the audit program.
2. Division of Work
The division of work among its employees should be done on the basis of department by audit so that it can be found out how much work is to be done and by whom.
The main objective of audit is to get the work done smoothly, to bring equality in the work and check of any transaction should not be missed.
4. On the basis of work area
An auditor should ensure that the audit program is designed in such a way that it is within working limits. In this way the misuse of money can be stopped.
It is true that with the passage of time changes may have to be made in the audit schedule as well. Thus the audit program should be prepared in this way. Due to which general changes can be made in the audit program from time to time.
6. Based on Accounting System
The accounting should be based on the system of accounting used in the undertaking of the audit. Due to which there should not be any difficulty in the audit process.
7. Signature, date and function
The audit schedule should have separate columns for the signing date and work for the employees.
8. Determination of Liability
While dividing the work among its employees, also determine the responsibility of the audit. Due to which every employee can understand his responsibility towards the work.
The relationship between the auditor, the employer and the employees in the business venture was maintained. For the fulfillment of this objective, it is very important to have the audit in writing.
Advantages/Characters of Audit Program
The advantages and disadvantages of audit are as follows-
1. Program of Complete Testing Articles
The programs of the entire investigation articles are prepared in advance so that in future work there is no fear of missing any part without investigation.
2. Adherence to Auditing Principles
The audit program assures that the principles of audit are followed in the audit program.
3. Work Progress
Work is done in a planned manner in the formulation of the audit program, so due to this, the progress of any work can be known.
4. Work As Qualified
In audit, the employees are divided according to their ability, their ability to work increases and they become experts in the work related to it.
5. Determining Responsibility
In the audit, in relation to every work, a particular person is made responsible, due to which he is responsible for the good and bad of that work.
6. Defense in Court
If in future, the auditor is prosecuted in the court for any negligence, the auditor can present the audit programs in his defense as evidence.
7. Time Check
There is no need to think again and again in working under the plan and there is no wastage of time through experiments and mistakes.
8. Uniformity in Functions
It is made on the basis of principles and assumptions in the audit program, it remains in the form of record with the audit, if the audit of that institution is done again in future, then seeing this audit, new audit can be done easily.
(a) General classification of audit
1. Statutory or Compulsory Audit
When the conduct of audit is mandatory by any legislation, it is called statutory or compulsory audit. In this the area of audit is decided by legislation. The auditor and the employer cannot eliminate it by any agreement. According to the Companies Act 1956 in India, “Every company registered under this Act shall have its accounts audited by a qualified auditor.” Apart from this, the government has also passed some other Acts, according to which it is mandatory for public trusts, electricity companies, gas companies etc. to get their accounts audited.
2. Private or Elective Audit
The audit which is done to check the accounts of private, sole trader, partnership firm or other organization, it is called private or voluntary audit. In this audit, the scope of work is not fixed by any legislation, but it is completely dependent on the agreement of the auditor and the employer.
3. Government Audit
Central, state and other governments get the accounts of their departments and companies run by them, (government companies) checked. A separate audit department is created for this work. The highest officer of this department, called Comptroller and Auditor General, is appointed by the President. This department after investigation submits its report to the government.
(b) Classification of audit according to the nature of the accounts
1. Cost Audit
The examination of the cost accounts of an organization is called cost audit. The purpose of cost audit is to obtain information about the justification of the cost of production by conducting a thorough examination.
2. Financial Audit
When the auditor audits the opening books, profit and loss account and balance sheet, it is called financial audit. In simple language, audit means financial audit itself.
(c) Practical classification of audit
1. Full Audit
If all the books of account related to a particular period are duly examined, so that no transaction or account is left out, then this type of check is called complete audit.
2. Partial Audit
If the owner of the organization does not audit the entire accounts of his business year, instead of getting some part of it audited, then it is called partial audit. Partial audit is also of two types-
(A) Timely Partial Audit
If the audit is done on the basis of 3 or 4 months, then it is called partial audit according to time.
(B) Partial Audit on the job
If a particular book of accounts is audited in place of all the books of account, then it is called partial audit according to the work.
3. Current Audit
It is also called final audit, balance audit and annual audit. When the books are closed at the end of the year and the final accounts are prepared, then the audit work is started and only after completing the audit work is completed, it is called periodical audit.
4. Ongoing Audit
When the auditor or its stock remains present in the institution throughout the year or continues to perform the work of audit at a fixed time interval, then it is called ongoing audit. It is also known as continuous audit.
5. Cash Audit
When someone appoints an auditor for the purpose of auditing cash accounts only, then this type of audit is called cash audit. Routine checking should be adopted while checking cash. The auditor should make it clear in his report that only cash accounts have been audited.
6. Interim or Intermediate Audit
The audit done for a particular purpose in the middle of the financial year is called intermediate or intermediate audit. For example, if a company declares interim dividend in the middle of the year, then it has to close all the accounts and get audit done in the middle to know the exact position of profit. Interim audit saves time over annual audit. Sometimes interim audit is useful for selling the business and for the entry of a new partner or the retirement of a partner and for other similar works.
7. Interim Audit
Due to the large number of transactions in big businesses nowadays, some trustworthy, experienced and honest people double-check the work done by an employee, that is, they themselves do the work of audit. This type of investigation is called internal audit. This helps a lot in annual audit.
8. Authentication Audit
If some selected entries are carefully examined while doing the audit and the remaining items are checked with a cursory glance, then it is called authentic audit.
9. Management Audit
This is an advisory form of audit where the manager first plans and then acts on it. Audit examines the actual work results of various aspects of the business, such as engineering, production, sales, etc. and compares them with the predetermined goals.
10. Detailed Audit
Detailed audit is different from full audit. Because in a detailed audit, instead of examining all the transactions and accounts, instead there is a thorough examination of the selected transactions. The scope of such audit is limited. Often this is for a specific purpose.
What is ongoing audit?
When the auditor, with the help of his staff, continuously checks the accounts by giving a fixed time difference throughout the year, then it is called ongoing audit.
Definition of ongoing audit
In the words of Spicer and Pugler, “Current and Continuing Audit is one where the accounts are continuously engaged throughout the year. Or where the audit comes at fixed or time intervals during the financial year and is called audit of the present accounts.
Advantages of Ongoing Audit
The advantages of ongoing audit are as follows-
1. Facilitation of audit work
The auditor can get more help and cooperation from his staff by distributing his entire work properly, it is convenient for audit.
2. Appropriate advice By audit, the information of the business entity is received by the audit, due to which there is less chance of missing any important thing, the auditor can give his right opinion regarding the business.
3. Speedy Preparation of Final Accounts
The audited final accounts can be presented immediately at the end of the business year. So that a company can declare its profit quickly.
4. Detailed and In-depth investigation
Due to this method, the work of audit continues throughout the year, due to which detailed and thorough examination of the accounts is done.
5. Ethical Impact on Employees
Coming to the organization throughout the year has a moral effect on the audit staff. In this way their efficiency, alertness, honesty increase.
6. Prompt rectification of errors and embezzlement
Errors in audit can be rectified quickly as transactions are checked soon after entries are made.
7. Update Accounts
The accounts are always complete till the date.
Disadvantages of Current Audit
The disadvantages of current audit are as follows-
1. more expensive
Current audit is very expensive, it is not useful for small organizations.
2. Unethical influence
Due to the lack of moral influence of the employees, there is a possibility that the employees may misuse their friendliness if the auditor comes again and again. The camaraderie of the employees in the auditor is generally to the detriment of the organization.
3. Change in Marks
The numbers in the accounts of audit can be changed with a sense of deception.
4. Mechanical work
In the ongoing audit, the work of the auditor becomes mechanical and due to their frequent visits, his interest in working becomes less.
5. Obstacles to work
The daily routine of the organization gets disturbed due to frequent visits of the year to the ongoing audit. Due to which the movement of the employees stops and the work gets hampered.
6. Fear of breaking the pace of work
Audit comes many times in the middle of the year and does its work, in this way the influx of work breaks due to the intervening, as well as the investigation of any work can remain incomplete.