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AUDITING AND CORPORATE GOVERNANCE (B.COM)
Module I
Reasons for the development of professional audit
1. Renaissance
2. Introduction of double entry.
3. Industrial revolution.
4. Introduction of statutory audit.
5. Companies act, 1956.
6. International standard for accounting and auditing.
7. Court judgements
8. Computer accounting.
9. Auditing practices.
10 SEBI Act
11. Corporate governance.
12. Emergence of multinational companies.
13. Globalization.
14. Nano technology.
15. Independence of auditor.
16. Removal of restrictions on taking up audit work in US.
17. Right to information Act.
18. The companies Act, 2013.
Auditing
The international auditing practice committee defines, “the
independent examination of an entity, whether profit oriented or not,
irrespective of its size or legal form when such an examination is
conducted with a view to expressing an opinion thereon.”
Difference between audit and book keeping
Auditing Book keeping
It is verification of accuracy of entries It is the art of recording daily
made in the books of accounts. transactions in the books of accounts.
It is done by auditors. It is done by book keepers.
,It is retrospective. It is of the current period.
It is analytical in approach. It is constructive in approach.
Auditors are outsiders. Book keepers are paid employees.
It is at the completion of year. It is a continuous process.
Difference between auditing and accountancy
Auditing Accounting
Where accounting ends, auditing Where book keeping ends. Accounting
begins. begins.
It is done by auditor. It is done by accountant.
Auditor is an independent person. Accountant is a permanent employee.
An auditor is remunerated in the form An accountant is remunerated in the
of professional fee. form of salary.
Auditing was a luxury concept. Accounting is a necessity.
Objects of audit
Primary object
To ensure the accounts reveal a true and fair view of business and its
transactions.
Subsidiary objects
a. Detection and prevention of errors.
b. Detection and prevention of frauds.
A) Detection and prevention of errors
Errors in accounting are
a) Errors of omission
Errors of omission arises when a transaction is wholly or partly omitted
being properly recorded in the books.
b) Errors of commission
It arises when a transaction has been recorded and wrongly entered in
the original entry ledger due to negligence.
c) Compensating error
A compensating error is one which is counter balanced by another
error.
,d) Errors of principles
It arises when entries are recorded by violating fundamental principles
of accounting.
B) Detection and prevention of frauds
Fraud means false representation or making a wrong entry intentionally
to defraud somebody.
Types of fraud
Misappropriation of cash.
Computer related fraud.
Functions of audit
1. To ascertain system of accounting of the organization.
2. To examine arithmetic accuracy of records.
3. To assess the quality of internal controls.
4. To verify physical assets and inventory.
5. To make recommendations for improvement.
6. To determine compliances with policies and procedures.
Advantages of auditing
Advantages to the business
1. Helps in detecting and preventing errors.
2. Helps in detecting and preventing frauds.
3. It ensure accuracy of books of accounts.
4. It ensure authenticity and reliability of final accounts.
5. It can enjoy reputation and goodwill of business.
Advantages to the owner
1. Sole trade can rely on the audited financial statement.
2. Auditing assure proper maintenance of accounts of joint stock
company.
3. It helps valuation of assets in admission, retirement, and death of a
partner.
4. Auditor helps the management to improve functioning of business.
Advantages to the Society
1. Audited statement of accounts is more reliable to creditors.
2. Income tax authority consider audited accounts to be reliable.
, 3. Audited accounts of company create a confidence in the mind of
investors.
4. Easily calculate purchase consideration on the basis of audited
accounts.
Disadvantages / Limitations of auditing
1. It is costly.
2. Loss of initiative.
3. It is mechanical.
4. Possibility of alteration.
5. Impossibility of checking all transactions.
6. Unsuitable for small concern.
7. Rely on experts.
Auditor as a watch dog not a bloodhound
An auditor is appointed by the shareholders in case of a limited
company. He is expected to play the role of watch dog for shareholders.
His duty is verification not detection. If he finds something suspicious
he should raise to the shareholders.
In case of frauds and errors the auditor has the duty of reasonable care
only. Watch dog concept limit the scope of the audit, that it is merely
verification of accounts and does not deeply cover the object of
detection and prevention of fraud.
Investigation
Investigation means an act of detailed examination of books and
accounts and financial position of a business firm.
Objects/ purpose of investigation
1. When the proprietor suspects fraud.
2. When a person intend to purchase business.
3. When a person wishes to purchase share of a company.
4. When a person wishes to lend money to a business.
5. It maybe conducted on behalf of income tax authority.
AUDITING AND CORPORATE GOVERNANCE (B.COM)
Module I
Reasons for the development of professional audit
1. Renaissance
2. Introduction of double entry.
3. Industrial revolution.
4. Introduction of statutory audit.
5. Companies act, 1956.
6. International standard for accounting and auditing.
7. Court judgements
8. Computer accounting.
9. Auditing practices.
10 SEBI Act
11. Corporate governance.
12. Emergence of multinational companies.
13. Globalization.
14. Nano technology.
15. Independence of auditor.
16. Removal of restrictions on taking up audit work in US.
17. Right to information Act.
18. The companies Act, 2013.
Auditing
The international auditing practice committee defines, “the
independent examination of an entity, whether profit oriented or not,
irrespective of its size or legal form when such an examination is
conducted with a view to expressing an opinion thereon.”
Difference between audit and book keeping
Auditing Book keeping
It is verification of accuracy of entries It is the art of recording daily
made in the books of accounts. transactions in the books of accounts.
It is done by auditors. It is done by book keepers.
,It is retrospective. It is of the current period.
It is analytical in approach. It is constructive in approach.
Auditors are outsiders. Book keepers are paid employees.
It is at the completion of year. It is a continuous process.
Difference between auditing and accountancy
Auditing Accounting
Where accounting ends, auditing Where book keeping ends. Accounting
begins. begins.
It is done by auditor. It is done by accountant.
Auditor is an independent person. Accountant is a permanent employee.
An auditor is remunerated in the form An accountant is remunerated in the
of professional fee. form of salary.
Auditing was a luxury concept. Accounting is a necessity.
Objects of audit
Primary object
To ensure the accounts reveal a true and fair view of business and its
transactions.
Subsidiary objects
a. Detection and prevention of errors.
b. Detection and prevention of frauds.
A) Detection and prevention of errors
Errors in accounting are
a) Errors of omission
Errors of omission arises when a transaction is wholly or partly omitted
being properly recorded in the books.
b) Errors of commission
It arises when a transaction has been recorded and wrongly entered in
the original entry ledger due to negligence.
c) Compensating error
A compensating error is one which is counter balanced by another
error.
,d) Errors of principles
It arises when entries are recorded by violating fundamental principles
of accounting.
B) Detection and prevention of frauds
Fraud means false representation or making a wrong entry intentionally
to defraud somebody.
Types of fraud
Misappropriation of cash.
Computer related fraud.
Functions of audit
1. To ascertain system of accounting of the organization.
2. To examine arithmetic accuracy of records.
3. To assess the quality of internal controls.
4. To verify physical assets and inventory.
5. To make recommendations for improvement.
6. To determine compliances with policies and procedures.
Advantages of auditing
Advantages to the business
1. Helps in detecting and preventing errors.
2. Helps in detecting and preventing frauds.
3. It ensure accuracy of books of accounts.
4. It ensure authenticity and reliability of final accounts.
5. It can enjoy reputation and goodwill of business.
Advantages to the owner
1. Sole trade can rely on the audited financial statement.
2. Auditing assure proper maintenance of accounts of joint stock
company.
3. It helps valuation of assets in admission, retirement, and death of a
partner.
4. Auditor helps the management to improve functioning of business.
Advantages to the Society
1. Audited statement of accounts is more reliable to creditors.
2. Income tax authority consider audited accounts to be reliable.
, 3. Audited accounts of company create a confidence in the mind of
investors.
4. Easily calculate purchase consideration on the basis of audited
accounts.
Disadvantages / Limitations of auditing
1. It is costly.
2. Loss of initiative.
3. It is mechanical.
4. Possibility of alteration.
5. Impossibility of checking all transactions.
6. Unsuitable for small concern.
7. Rely on experts.
Auditor as a watch dog not a bloodhound
An auditor is appointed by the shareholders in case of a limited
company. He is expected to play the role of watch dog for shareholders.
His duty is verification not detection. If he finds something suspicious
he should raise to the shareholders.
In case of frauds and errors the auditor has the duty of reasonable care
only. Watch dog concept limit the scope of the audit, that it is merely
verification of accounts and does not deeply cover the object of
detection and prevention of fraud.
Investigation
Investigation means an act of detailed examination of books and
accounts and financial position of a business firm.
Objects/ purpose of investigation
1. When the proprietor suspects fraud.
2. When a person intend to purchase business.
3. When a person wishes to purchase share of a company.
4. When a person wishes to lend money to a business.
5. It maybe conducted on behalf of income tax authority.
