We will discuss here Objects of Auditing. An audit is a process of verification and/or validation of the fulfillment of an activity as planned and the stipulated guidelines. According to the ISO (International Organization for Standardization) it is an independent and documented systematic process that allows obtaining audit evidence and carrying out an objective.
Key concepts; Objects of Auditing.
- ACCOUNTING POLICIES
The main object of auditing is to examine the accounting policies. Accounting policies arc needed for preparing the accounting records. The auditor can express his opinion on the accounting policies in the best interest of business.
- EAIRNESS OF STATEMENTS
One of the most important objectives of audit is to determine the fairness of statements. Auditor examine the books of accounts to know the reliability of financial statements. The financial statement can show true and fair view after auditing.
- INDEPENDENT OPINION
forming and expression of an independent opinion ol auditor about the accounts of client is an important objective of audit. Auditor gives his opinion whether the accounts are showing True and fair view’ or not.
- PRESCRIBED LAWS
v Another object of audit is to check that prescribed laws were followed or not in preparation of financial statements. There arc various laws which govern the working of many businesses.
(B) SECONDARY OBJECTIVES
DETECTION OF ERRORS
Unintentional mistakes in financial statements are called errors. The purpose of audit is to detect the following errors.
When incorrect entries are made in the books of accounts cither wholly or partly, the errors are known as errors of commission. Such errors arc discovered by vouching the purchases with the original invoices.
It means the error in which the transaction has been completely omitted from the records. Such errors can be located through thorough checking.
Compensatory error means an error which is cancelled by an other error of same amount in the opposite direction. Detection of such errors require a complete and exhaustive preparation on the part of an auditor.
These errors are occurred when accounting principles are not strictly followed. Ihe examples of • such errors:
- To show the revenue expenditures.as capital.
- Omission of outstanding assets and liabilities..
- Falsification of accounts
This fraud is generally committed by higher management lo show more or less profit. 11 can hg detected with a great difficulty. I his fraud may be committed in following ways:
- Recording next year credit sale in this year.
- Recording of fictitious sales.
- Over or under valuation of stock.
- Charging capital expenditures.
- PREVENTION OF ERRORS AND FRAUDS
The purpose of auditing is lo prevent errors and frauds. An auditor can put a moral check upon the staff by deleting them. Auditor points out the weak points and offers his suggestions for making improvements/in the management and internal control of the organization.
SATISFACTION OF TAXATION’ OFFICER
The object of audit may be to satisfy the taxation officers. Through audit, tax matters are easily settled.
- LOAN
- The object of audit may be loan. The management can approach the banks and other money lenders.
- Profits
The purpose of audit is to check the variations in profits. Business life depends upon the profits. An expert auditor can analyze the fluctuation in profits.
- PROPER SUPERVISION
The object of audit may be the proper supervision of business) Sometimes owner can not look after the business personally. Audit acts as a check on employees and it saves the owner from losses.