METHODS OF AUDITING

M TU R PU PA EN VI N B A VA A C LLEG O
A SH I SH B UHI LI O E F
C M ER E
OM C
(A LI A
FFI TED TOU I VER TY O M M A )
N SI F UBI

BORIVALI EDUCATION SOCIETY (BORIVALI)
INTRODUCTION, PLANNING AND TECHNIQUES
OF
AUDITING

PRESENTATION
ON

FY.BAF
NAME : RIKESH B. CHAURASIA
ROLL NO. : 838 (A)

INTRODUCTION
OF
AUDITING

EVOLUTION

 The term audit is derived from the Latin term „audire,‟ which
means to hear.

 Auditing is as old as accounting.

 Landlords used to “hear” the position of accounts

 In India the companies Act 1913 made audit of company
accounts compulsory.

DEFINITION

 Prof. L.R.Dicksee. "auditing is an examination of
accounting records undertaken with a view to
establish whether they correctly and completely
reflect the transactions to which they relate.

WHAT IS AUDITING?

 Understood as an examination of accounting records

 Is a written report on the examination of financial statements
for a client

 Auditor has to express his opinion

 Auditor has to give his opinion

 True and Fair position

BASIC PRINCIPLES OF AUDITING
 Integrity

 Objectivity and Independence

 Skill and Competence

 Confidentiality

 Work performed by others

CONTINUE……

 Planning

 Documentation/Working papers

 Audit evidence

 Accounting system and Internal Control

 Audit conclusion

OBJECTIVES OF AUDITING
The objective of audit can be divided into two
parts:

Primary Secondary
objective objective

PRIMARY OBJECTIVE (MAIN OBJECTIVE)

To produce a report by the auditor of his opinion of
the truth and fairness of financial statements so
that any person reading or using them can have
belief in them.

SECONDARY OBJECTIVES

1. To detect errors and frauds
2. To prevent errors and frauds by the deterrent
and moral effect of the audit.
3. Secondary objective is ensure the final
accounts tally with books of accounts.

WINDOW DRESSING
 In accounting , window dressing means showing
the books of accounts attractive. It means
showing the wrong picture.
 Amounts of profits and net worth are overstated
in the Liabilities.
 It is an act making a company look financially
then it really is.
 It is technique in accounting that is used to
present the financial position of the company in
a favorable.

MERITS OF WINDOW DRESSING

1. Existing Shareholders take advantage of
window dressing.

2. There is considerable scope for window
dressing in company‟s published accounts.

SECRET RESERVES
 Reserve means part of the profits kept aside for the
future use.

 Secret Reserve means part of the profits secretly kept
aside for the future use.

HARMS OF SECRET RESERVES
 No true & fair view

 Harmful to investors

 Undue benefit to management

 Withdrawal of Profit

 No check on asset

DISTINGUISH BETWEEN ACCOUNTING/AUDITING

 Accounting/Auditing
1. Meaning

2. Objective

3. Scope

4. Done by

5. Responsibility

6. Qualifications

INTRODUCTION

 The primary objectives of Audit is to Determine whether the
books of accounts are TRUE & FAIR.

 The secondary objectives are Detection & Prevention of
Errors & Frauds.

 Accounts are said to be True and Fair only when they are
from errors and frauds.

TYPES OF ERRORS

 There are two types of Errors

Errors of
Clerical Errors
Principle

TYPES OF FRAUDS

 There are two type of Frauds:

Manipulation Misappropriations
of Records

AUDITORS RESPONSIBILITY TOWARDS ERRORS
AND FRAUDS

 Prime responsibility of management

 Incidental objective of audit

 Probability of Non-detection of errors & frauds

 Indicators of errors & frauds

 CARO 2003

METHODS OF AUDITING

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