Business

Main Objects of an Audit

Objects of an Audit

Objects of an Audit

The main objects of an audit is an examination of the books of account and ascertain that the balance sheet and profit and loss account  exhibit a true and fair view of its financial position and earning of the concern.

This is possible only when he verified the accounts and financial statements. The followings the main objects on an audit:

  1. Detection and prevention of error
  2. Detection and prevention of frauds
  3. Auditor’s  Report
  4. Moral check.

Detection and Prevention of Errors

Errors can be committed innocently or intentionally but an auditor is required to pay particular attention to every error. however innocent it may appear to be at first sight. The following may be the various kinds of errors.

  1. Error of Omissions
  2. Error of Commission
  3. Principal Error 
  4. Trial Balance Error
  5. Compensating Error

Detection of prevention of Frauds

Fraud means fake demonstration of accounts or entry made by design or without principle in its truth with an examination to mislead other party. Detection of fraud is main duties of an auditor. Originally audit was conducted mainly with view to detect fraud whenever or whenever it was suspended

The following are the various ways in which the fraud can  omitted.

Embezzlement of cash

There is greater possibility of fraudulent transaction of money in a big business concern than in the case of small proprietary business where the owner has a direct control over the receipt and payment of cash.

Cash may be embezzled by:

  1. Omitting to enter any cash which  received              or
  2. Entering less amount than which received                or
  3. Making fabricated entry on the payment side of the cash book         or
  4. Entering more amounts on the payment side of the cash book which actually paid.

Misappropriation of Goods

Misappropriation of goods is more complicated to discover, except correct stock records is kept. In fact unless such records are in use. It is almost impossible to discover small misappropriation of this nature.

Fraudulent Manipulation of Accounts

Such type of fraud is also difficult to discover as it is generally committed by the directors or manager. who wish to make up the concern by showing fictitious profits in order to pay in dividends, to obtain further credit or with a view to the disposal of their holding in the company at inflated prices.

Auditor Report

One o the important objects of an audit is to enable the auditor to express an opinion as to the truth and fairness of the accounts, he is reporting on the view of presented by the accounts and statements prepared by the client, in accordance with the terms of the auditors appointment. The different considerations which arise on the appointment of an auditor by a sole trade, partnership or under statute will be dealt with in the following section. On completion of his examination of financial statements and financial data, he required to write a report summarizing his findings.

Moral Check

As the client’s staff aware of the fact that an independent professional accountant examined their accounts and statements. So they become more careful in writing books of accounts and performing their duties. So the visits of an auditor have significant moral check on the client’s staff. Such process not only improves the quality of the accounts but also improves the accuracy and correctness of the accounts and financial statements.

The visits of auditor have moral check on the staff of the clients accounting books examined thoroughly. A regular audit, therefore, be likely to keep the books of account up-to date and help out in exercising a large moral control on the staff so as to help in avoid errors and frauds.