Definition of auditing
Auditing and Assurance Standards (AAS) 1 by ICAI
“Auditing is the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon”.
“An audit is an examination of accounting records to establish their reliability and the reliability of statements drawn there from.”
International Auditing Guidelines
“Auditing is independent examination of finance information of any entity with a view to expressing an opinion thereon.”
OBJECTIVES OF AUDITING
AAS 2 issued by ICAI states that the objective of an audit of financial statement is to enable an auditor to express an opinion on such financial statements. A financial audit has a basic objective of examining whether the accounts are true and fair. It has an incidental objective of detecting errors and frauds.
- BASIC OBJECTIVE – True and Fair View
The basic object of financial audit is to enable an auditor to express an opinion on the financial statement the auditor gives his opinion on whether the final accounts give a true and fair view of the concern
True and fair view of final accounts means:
- Profit and Loss statement give a true and fair view of the income and expenditure and profit and loss of the concern
- The balance sheet gives accurate and true and fair view of the financial position of the concern at the end of financial year
It means the concern should disclose their profit and loss as it is and also discloses the true value of its net worth, all material items should be disclosed.
The final account is said to be true and fair when the concern prepare it’s as per the law complied by ICAI
- INCIDENTAL OBJECTIVE – Detection of Errors and Frauds
If accounts are true and fair they should be free from any error or fraud, their discovery may be incidental audit. Since the final accounts are based on books of accounts, the incidental objective of audit is to ensure that the final accounts tally with their books of accounts. While conducting the audit, the auditor has to:
- Vouch the transactions
- Verify the assets and liabilities
- Study internal control
During such study, verification and vouching the auditor comes to know about the errors and frauds then he takes a proper action against this so the final accounts gives true and fair views which are free from errors and fraud.