Scope of AuditAuditing Notes B.Com 6th Sem CBCS PatternAuditing Important Topics
Scope of Audit
The scope of audit is increasing with the increase in the complexities of the business. It is said that long range objectives of an audit should be to serve as a guide to the management future decisions.
Today most
of the economic activities are largely conducted through public finance. The
auditor has to see whether these larger funds are properly used. The scope of
audit encompasses verification of accounts with a intention of giving opinion
on its reliability. Hence it covers cost audit, management audit, social audit
etc. It should be remembered that an auditor just expressed his opinion on the
authenticity of the account. He has no power to take action against anybody, in
this regard its said that “an auditor is a watch dog but not a blood hound”.
The auditor can determine the scope of an audit of financial statements
on the basis of various factors. Factors which affects the scope of Audit are
as follows:
a. Legal Requirements: The auditor can
determine the scope of an audit of financial statements in accordance with the
requirements of legislation, regulations or relevant professional bodies. The
state can frame rules for determining the scope of audit work. The auditor can
follow all the law applicable on the audit work while checking the accounts of
a business concern.
b. Entity Aspects: The audit should be
organized to cover all aspects of the entity as far as they are relevant to the
financial statement being audited. A business entity has many areas of working.
A small entity may have few functions while a large concern has many functions.
The auditor has duty to go through all the functions of a business. The audit
report should cover all function so that the reader may know about all the
working of a concern.
c. Reliable Information: The auditor should
obtain reasonable assurance as to whether the information contained in the
underlying accounting record and other source data is reliable and sufficient
as the basis for preparation of the financial statements. The auditor can use
various techniques such as compliance test and substance test to test the
validity of data.
d. Proper Communication: The auditor should
decide whether the relevant information is properly communicated in the
financial statements. Accounting is an information system so facts and figures
must be so presented that reader can get information about the business entity.
The auditor can mention this fact in his report. The principles of accounting
can be applied to decide about the disclosure of financial information in the
statements.
e. Evaluation: The auditor assesses
the reliability and sufficiency of the information contained in the underlying
accounting records and other source date by making a study and evaluation of
accounting system and internal controls to determine the nature, the nature,
extent and timing of other auditing procedures.
f.
Comparison: The auditor
determines whether the relevant information is properly communicated by
comparing the financial statement with the underlying accounting records and
other source data to see whether they properly summarized the transaction and
events recorded therein. The auditor can compare the accounting record with
financial statement in order to check that same has been processed for
preparing the final accounts of a business concern.
g. Judgments: The auditor
determines whether the relevant information is properly communicated by
consideration the judgement that management has made in preparing the financial
statements, accordingly, the auditor assesses the selection and consistent
application of accounting policies, the manner in which the information has
been classified and the adequacy of disclosure. The auditor must have the
quality of judgement when accounting books to not provide true data.
h. Evidence: The audit evidence
available to auditor is persuasive rather than conclusive in nature. Due to
judgment and persuasive evidence absolute certainty in auditing is really
attainable. That is why the auditor can express an opinion as true and fair
instead of exact and cent percent correct. The personal judgments affect the
value of many items. The value of such items becomes an opinion so cent percent
accuracy is not there.
i.
Errors: The auditor may get
an indication that some fraud or error may have occurred which could result in
material misstatement would curse the auditor to extend his procedures to
confirm or dispel his suspicion. It is the duty of auditor to check cent
percent items in order to discover the error in accounting books and other
records when he smells any doubt. He should clear the doubt or confirm it while
going through the record.
Also Read: Auditing Important Topics for Upcoming Exams
Q. Explain the meaning of Auditing. What its objectives? Explain them fully. 2016, 2017
Q. What do you mean by continuous audit? How does it differ from periodical audit (2018SN)? What are its advantages and disadvantages? 2013, 2014SN, 2017, 2018SN, 2023
Q. Distinguish between Auditing and Accountancy.
Q. State the basic principles governing an audit. 2019, 2023
Q. Explain the advantages and limitations of Audit. 2014, 2016SN, 2017SN, 2018, 2022
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