ch 2 - objectives of audit_sy
TRANSCRIPT
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 1/10
Chapter 2 :Objectives of Auditing
S.Y. BBA
Academic Year : 2010-11
Trimester : VI
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 2/10
The objectives of Auditing
Primary objectives :(to enable an auditor to express his opinion on….)
• Truth and fairness of the financial position as
shown in balance sheet
• Truth and fairness of the trading results asdepicted in profit & loss account
• Adequacy of information required to be disclosed
• Compliance and statutory requirements
• Accuracy and reliability of books of accounts andunderlying records
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 3/10
The objectives of Auditing
Secondary objectives :
a) To detect errors and frauds if any
b) To prevent errors and frauds by thedeterrent effect of audit
c) To provide allied services in the nature of consultancies on accounting treatment,
accounting systems, taxation, financialproblems etc.
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 4/10
Definition of Fraud
Fraud can be defined as :
“ the successful practice of deception,
with the intention of cheating another person. It involves trickery and deceitful action.”
Fraud maybe named in other words likeembezzlement, defalcation andmisappropriation or manipulation.
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 5/10
Some methods of Manipulation of accounts
1. Overstatement of stock
2. Overstatement of sales
3. Understatement of purchases
4. Manipulation of expenses5. Overstatement of Assets
6. Understatement of Liabilities
7. Misappropriation of cash or goods
8. Omission to record cash receipts9. Teeming and Lading (Lapping)
10. Kiting
11. Intentional errors in balancing cash book
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 6/10
Some methods of Manipulation of accounts
12. Payment by duplication of source documents
13. Cheque writing by leaving gap
14.Inclusion of dummies in the payroll
15. Payroll overcasting
16. Fraudulent adjustment entries
17. Forgery
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 7/10
Types of Errors
1. Errors of omission-transaction has been omitted
2. Errors of commission–
improper recording of transactions
3. Errors of principles – transactions not recorded as per accounting principles
4. Compensating Errors – Primarily wrong but offset by another wrong entry
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 8/10
Circumstances indicatingerrors or frauds
Quality of Management
a) Mgt is dominated by one person or a
small groupb) Internal control is absent or weak
c) There is high turnover of accountingstaff
d) The accounts dept is overstaffede) Auditors and lawyers are changed
frequently
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 9/10
Circumstances indicatingerrors or frauds
Problems in Audit :
a) There are inadequate records, incomplete files,untallied trial balances
b) Vouchers are not available or not duly authorised or supporting documents are altered.
c) Third party confirmations are not available or are absent, differences in quantity reconciliations,or unexplainable changes in ratios
d) there is lack of or inadequate explanations from management
8/4/2019 Ch 2 - Objectives of Audit_SY
http://slidepdf.com/reader/full/ch-2-objectives-of-auditsy 10/10
Auditors responsibility forerrors and frauds
Basic responsibility of Management – for good accounting and internal control
Incidental Objective of Audit – to ensure audit is free from major errors and frauds
Possibility of Non detection–
not failure in duty as long as reasonable care has been taken
When circumstances indicate error or fraud –
take additional steps to detect them and ensure proper closure or disclosure
CARO 2003 – reporting requirements for fraud or error in the new format of CARO 2003.