basic auditing and its meaning

Meaning:

An audit is 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. this definition has the following implications: (a) Audit is independent examination. (b) examination is of financial information when the objective is to express an opinion. (c) requirement of audit applies in case of every entity, whether profit oriented or not (commercial entities or NGOs), whatever is the business size of entity (Small Size entity or large size entity), whatever is the legal form of the entity (proprietor, partnership or company).

Scope:

The scope of audit is determined by the auditor having regard to following: (a) Terms of the Audit Engagement (b) Requirement of Relevant Statute. (c) Pronouncements of the ICAI.

Objectives :

(a) the objective of an audit of financial statements, prepared within a framework of recognized accounting policies and practices and relevant statutory requirements, if any, is to enable an auditor to express an opinion on such financial statements. (b) The auditor’s opinion helps determination of the true and fair view of the financial position and operating results of an enterprise. (c) The user, however, should not assume that the auditor’s opinion is an assurance as to the future viability of the enterprise or the efficiency or effectiveness with which management has conducted the affairs of the enterprise.

Advantages:

1. Protect the interest of fund providers

2. Moral check on employees

3. Settlement of Taxes, etc.

4. Settlement of Trade Disputes

5. Detection of Wastage

6. Proper maintenance of books of account

7. Appraisal of controls

8. Admission/retirement of Partner

9. Grant of License