Note on Auditing

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Auditing
Auditing

Auditing is the systematic act of examining, verifying and reviewing the accounting records and statement by an independent person considering their accuracy, reliability and effectiveness to provide the true and fair result of the operation. It is the intelligent and critical test of correctness, sufficiency and reliability of accounting data and statements. It is the act of checking, verifying the records, books of account and financial statement of the entity. It is to ascertain the correctness of the records and verify whether the financial statements truly represent the actual working results and financial position of the organization.

The following are the main definitions of auditing:

“Auditing is being concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statements and reports.” - R. K. Mautz

“Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify, and to report upon, the facts regarding financial operations and the results thereof.” – Montgomery

“An audit is an examination of such records to establish their reliability and the reliability of statements drawn from them.” – A. W. Hanson

Importance and Advantages of Auditing

The following are the main importance and advantages of auditing:

  1. Credibility
    Credibility
    Credibility

    Auditing lends credibility to the financial statements prepared by a business. It helps to make decisions relating to business activities. Thus, it facilitates the operations of the modern financial system.

  2. Correctness
    Auditing helps to correct accounting records, statements and reports as the auditor verifies and examines them properly.

  3. Detection and prevention of frauds and errors
    An auditor's main duty is to detect and prevent the frauds and error by checking the account of documents, records, books and statements.

  4. Alert the staff
    An auditor alert the staff to make all records, books of account and statements up-to-date. Besides, it exercises a moral influence over the staff the act honestly and loyally.

  5. Comparison
    Comparison
    Comparison

    An auditor instructs an accountant in the same way which helps to compare books of account of the current year with the accounting of previous year. So, comparing the accounts will help to detect frauds and error.

  6. Evidence
    If in any case the audited accounts can be presented as an evidence to tax authorities for a fair assessment of tax, and to the court of law in a case of any business dispute.

  7. Settlement of disputes
    The audited accounts help to settle the accounts among partners in a partnership firm at the time of profit distribution, introducing a new partner and retirement or death of an existing partner.

  8. Confidence
    Confidence
    Confidence

    Since, auditing helps to detect frauds and error and helps to settle disputes which helpto build confidence among a large number of investors, workers, customers and the public in general.

  9. Increase goodwill
    It shows the profitability and financial position of an organization which creates faith of public over the organization. Thus, auditing helps to increase goodwill of the organization.

  • Auditing is the systematic act of examining, verifying and reviewing the accounting records and statement by an independent person considering their accuracy, reliability and effectiveness to provide true and fair result of operation.
  • Auditing lends credibility to the financial statements prepared by a business.
  • The audited accounts may be presented as an evidence to tax authorities for a fair assessment of tax, and to the court of law in case of any business dispute.
  • Auditing also facilitates comparison of financial results of different years that helps the business organizations to assess their past performance and plan for the future.
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Very Short Questions

Any five importance of auditing are explsined below:

  1. Credibility
    Auditing lends credibility to the financial statements prepared by a business. It helps to make decisions relating to business activities. Thus, it facilitates the operations of the modern financial system.

  2. Detection and prevention of frauds and errors
    It attempts to detect and prevent frauds and errors by making thorough checks of accounting documents, records, books and statements.

  3. Alert the staff
    A regular audit makes the staff alert to make all records, books of account and statements up-to-date. Besides, it exercises a moral influence over the staff the act honestly and loyally.

  4. Evidence
    The audited accounts may be presented as an evidence to tax authorities for a fair assessment of tax, and to the court of law in a case of any business dispute.

  5. Settlement of disputes
    The audited accounts are very helpful in an amicable settlement of accounts among partners in a partnership firm. Such a settlement is necessary to avoid disputes among partners particularly at a time of profit distribution, introducing a new partner and retirement or death of an existing partner.

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  • ______ is the systematic act of examining, verifying and reviewing the accounting records and statement by an independent person considering their accuracy, reliability and effectiveness to provide true and fair result of the operation.

    Auditing
    Accounting
    Interpreting
    Controlling
  • "Auditing is being concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statements and reports." Who said this?

    R. K. Mautz


    Montgomery


    J.R. Batliboi


    A. W. Hanson


  • "Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify, and to report upon, the facts regarding financial operations and the results thereof." Whose saying is this?

    A.N. Agrawala


    Montgomery


    R. K. Mautz


    A. W. Hanson


  • "An audit is an examination of such records to establish their reliability and the reliability of statements drawn from them."  Whose saying is this?

    Montgomery
    Shirley Taylor
    R. K. Mautz
    A. W. Hanson
  • Auditing lends ______ to the financial statements prepared by a business.

    comparison


    correctness


    credibility


    all the options are correct


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