Updated date:

Objectives of Audit and Advantages of Auditing

Author:

Neha is a Post Graduate from Delhi University in Commerce. Loves to write a verity subjects.

The Auditor Should Exercise The Utmost Care To Detect Frauds.

The auditor of a company has to state whether in his opinion the accounts disclose a true and fair view of the state of the company's affairs.

The auditor of a company has to state whether in his opinion the accounts disclose a true and fair view of the state of the company's affairs.

Objectives and advantages of Audit

The objectives of an audit may broadly be classified as.


1. Primary Objectives
2. Secondary objectives.

Primary Objectives:

The main purpose of the audit is to judge the reliability of the financial statements and the supporting accounting records for a particular financial period. The Companies Act, 1956 requires that the auditor of a company has to state whether in his opinion the accounts disclose a true and fair view of the state of the company's affairs, Profit and Loss Account and Balance Sheet of the state of affairs of a business, the auditor carries out a process of examination and verification of books of accounts and relevant documents. Such an examination will enable the auditor to report to his client on the financial condition and working results of the organization. While carrying out the examination of the various books of accounts, relevant documents, and pieces of evidence, the auditor may come across certain errors and frauds. Despite such a possibility, the detecting of errors and frauds is an incidental object. However, laymen have always associated the detection of errors and frauds as the main function of an auditor that is not true. At the same time audit also discloses how far the accounting system adopted in the organization is adequate and appropriate in recording the various transactions as well as the weakness of these systems.

Secondary Objectives:

As stated above, an auditor has to examine the books of accounts and the relevant documents in order to report on the financial condition of the business. In the process of such an investigation of accounts, certain errors and frauds may be detected. These are discussed under the following two heads:

A. Detection and Prevention of Errors
B. Detection and Prevention of Frauds

Detection and prevention of Errors: Various types of errors are mentioned below:

1. Clerical Errors: Such an error arises on account of the wrong posting. For example, an amount received from Thomas is credited to Sunny. Though there is a wrong posting still, the trial balance will agree. Clerical errors are of three types as follows:

  • i) Errors of Commission: Errors are caused due to wrong posting either wholly or partially of the amount in the books of original entry or ledger accounts or wrong calculations, wrong totaling, wrong balancing, and wrong casting of subsidiary books. For example Rs. 500 is paid to a vendor, and the same is recorded in the cash book. While posting to the ledger, the Vendor's account is debited by Rs. 500. It may be due to the carelessness of the clerk. Most of the errors of commission are reflected in the trial balance and these can be discovered by routine checking of the books.


  • ii) Errors of Omission: Such errors arise when the transactions are not recorded in the books of original entry or posted to the ledger. For example, sales are note recorded in the sales book or omission to enter invoices in the purchase book. For example Rs. 200 is paid to a vendor. The entry in the cash book is made on the credit side but posting to the vendor side is omitted. Errors due to entire omission will not affect the trial balance whereas errors due to partial omission will affect the trial balance and can be detected.


  • iii) Compensating Errors: When two or more errors are committed in such a way that the result of these errors on the debits and credits is nil, they are referred to as compensating errors. For example, Anil's account which was to be debited for Rs. 500 was credited for Rs. 500, and similarly, Sunil's account which was to be credited for Rs. 500 was debited for Rs.500. These two mistakes will nullify the effect of each other. Both sides of the trial balance are equally affected. As such, these errors are difficult to locate unless a detailed investigation is undertaken.


2. Errors of Principle: Such errors are committed when some fundamental principle of accounting is not properly observed in recording transaction. For example, if there is an incorrect allocation of expenditure or receipt between capital and revenue or when closing stock is over-valued. Though trial balance will not disagree, the Profit and Loss Account may be very much affected. Sometimes, such errors are committed deliberately to falsify the accounts or unintentionally due to a lack of knowledge or sound principles of accounting. Thus, a thorough examination is to be done to locate such errors.

Detection and Prevention of Frauds: Frauds are always committed deliberately and intentionally to defraud the proprietors of the organization. If the frauds remain undetected, they may affect the opinion of the auditor on the financial condition and the working results of the organization. It is, therefore, necessary that the auditor should exercise the utmost care to detect such frauds.

Comments

Edina William on March 01, 2019:

Thank you a lot

sandeep on October 30, 2017:

thank you sir , it helps me lot while preparing the exams

dinesh on January 22, 2016:

Thank you so much

Saranya on November 13, 2015:

It will be very helpful for all commerce students- Thank you very much!!!

AGIM CELSUS USHIE. on July 29, 2015:

Dis is a disent information, it help me alot in my assignment given by my (HOD), an as well gives me more knowledge an skill's, in my honorable profession..tanx alot an GOD wil grant us more wisdom to move Nigeria forword by giving appropriate records an detections of fraud an errors, recorded by 419ners who are respectively employed both refuse to do their job correctly..Tanx again an GOD bless.

any name on May 14, 2015:

know tanks

jeff on November 05, 2014:

gfhhk

magesh krishnasamy on July 01, 2014:

super nice

bala on July 01, 2014:

It help to students. Very nice

Oddo on March 19, 2014:

Hell team, its really helpful

christine on February 25, 2014:

It so wonderful,i like this page for giving us quick,clear and first hand information.Thank you

jared on February 03, 2014:

Thanks a lot hav nao understood the.theory of errors...

kultaran on January 22, 2014:

thanks a lot 2 d writer t ll definitely help 2 crack my exams

sony on November 17, 2013:

Its really helpful

Mylindaminka on April 30, 2013:

То есть яркий оргазм можно получить тогда, когда сексуальные энергетики обоих партнеров вступают в резонанс друг с другом, когда возникает полная гармония их переживаний, ритмов движений и дыхания.

Sally on March 27, 2013:

Can u please give me your real name cause I want to use this as a reference for my thesis-u can send it 2 (arthur_phoebe@yahoo.com). Thanks

Futamarka on March 21, 2013:

А так как положение в экономике становится всё хуже, то экономический спад в этой стране скоро достигнет беспрецедентной глубины. Так не пришло ли время уходить из крупных городов Америки? В конце концов, каждый из нас встанет перед необходимостью ответить для себя на этот вопрос. Рабочих мест мало, поэтому, если у вас в данный момент есть хорошая забота, то, наверное, не стоит отказываться от неё. Это может быть невероятно сложным напудриванием Прикол - переехать в другое место, когда у вас нет заботы.

Nidesoissiorb on March 08, 2013:

We helpful to find at the top of existence nevertheless these days I have piled up any amount of resistance.

christopher zellah on November 10, 2012:

thanks you for this detail because it enable me to educate the society about management of financial condition

christopher zellah on November 10, 2012:

thanks you for this detail because it enable me to educate the society about management of financial condition

nigel flex on September 26, 2012:

thanx a spn

pavithra on July 23, 2012:

thank u for the clear view...

znz on July 11, 2012:

thank u so much this information made me easy to give seminar in my college i got many points frm it

01722767714 on July 07, 2012:

very nice ... i like it

Karthick on June 20, 2012:

Good information

Tomeselmrot on June 11, 2012:

weight loss drugs and phenter

Botox injections are additionally employed for the actual improvement with the skin internal organs like the mouth as well as the small area around your eye area. Older people, helps the skin look a lot more tightly, though it cannot be totally efficient, because the epidermis can be a kind of long term suspension. Nevertheless, the outcomes are generally noticeable, and durable. The particular recommended serving of Botox injections on a daily basis is amongst the several weeks, as well as adequate to cause you to look younger for years. Actually improves the skin and often the end results are generally comprehensive to the level that men and women who don't have got wrinkles, use it to appear greater.

Featured just about all robust Innovative Pharmaceutic Find out Company, Upper China'S Websites Pharmaceutical Business, actually is "the final results upon 863 taller-tech questions and as well , building process exchange start.Inches This begin, company is very difficult. Seen in healthcare website whole operation, the collection united parcel service, exactly like genomics, bioinformatics, beef filtration, ingredient functionality investigate operating many different fighting styles and in addition , veteran men and women, accompanied by Northern Far East Prescribed Medicine Enterprise's conventional organization, did start to rework old-school industrial market sectors in present day inbreed preliminary experiment with.

chinese herbal weight loss pills

Tomeselmrot on June 09, 2012:

generic drug minocycline vs minocin

Steroid use: Balancing the potential for loss as well as positive aspects - Are COX-2 medicines risk-free to suit your needs? Interviews using a Mayonnaise Clinic expert 1 . Joint replacement: Surgery could ease soreness

Related Posts - evista, without having health professional prescribed substance,

depo provera faq can strattera hurt prostate

naila on May 16, 2012:

v good answer.it is help us for the preparation of annual examz

IMAN MBWAMBO. on May 07, 2012:

I REAL LIKE THE GIVEN INFORMATION, FIRSTLY THEY ADD KNOWLEDGE AND SKILLS IN MY CARRIER ALSO THEY HELPED ME TO ANSWER ASSIGNMENT GIVEN BY MY LECTURER,,,,,,,

saira ali on May 04, 2012:

this is very clear and nice explanation .

sohag das on April 22, 2012:

good content, helped me a lot in doing my clg project.

Thank You..

mahesmani on April 18, 2012:

thanks for information.

Angel Cbe dom on April 10, 2012:

Thanks a lot! It's helpful for me in doing my assignment! Big up.

Rakib on April 05, 2012:

Thanks. I AM REALLY HAPPY FOR EASY TO GET INFORMATION FROM HERE.

obinna victor on April 02, 2012:

thanks.

Prof. Kashif ch. on March 26, 2012:

this topic needs a comprehnsive discussion that is unluckly not mentioned over here. proper examples are required to clear the mind of reader.

ashwini on March 16, 2012:

thanks for information

prof yogesh soni oxford on March 12, 2012:

gud notes need more evaluvate

poonam solanki on March 05, 2012:

thnku thnku a lot yaaar ......

lubz u for this .. awesome hai .. exm me help ho gayi ji humari .... thnx a ton :D

Farrukh on February 29, 2012:

Nice article... But u didn0t briefly discuss the detection of fraud

Nagaraj on January 03, 2012:

Im a degree student.thanks for all.

Rogers on January 02, 2012:

I love this piece of note. It has really help me to do my auditing assignments

Richmond on December 02, 2011:

I love this piece of note. It has really help me to do my auditing assignments

Niazi on November 26, 2011:

tanks........helpful for me

friya shah on November 21, 2011:

not good. there is no much headings.

marzipurian on October 29, 2011:

thanks very much

umer on October 29, 2011:

its very short please change it into long information.

sathya on October 13, 2011:

this notes are very useful to my exam preparetion thaks to all

sajid iqbal on October 10, 2011:

thank you sir for information.

kayode on October 03, 2011:

thanks for the information at all time

shereen khanam on September 05, 2011:

its superb

thankx a lot for such a n info

Muhammad Faisal Nazeer on August 24, 2011:

aslam.o.alykum

Dear Sir,

mtonga-zambia on August 23, 2011:

what are the differences between the audit objectives and audit program?

Sai on August 23, 2011:

Thanks a lot...

suhail on August 16, 2011:

thanks...........

for all

Awulu F. A on January 21, 2011:

I hav learnt enough frm this. A good material, I coment!

billrobinson from CA, USA on December 08, 2010:

Thank you for all the info.

Neha J (author) from Delhi on May 03, 2010:

Thanks all for your visit and comment

Pro: Abid Khattak on May 01, 2010:

that is very much nice because i understand it and that is helpful for me being a professor

Cherie Santasiero PhD from Hamburg, NY on February 12, 2010:

Hi there,

I have noticed more errors on the wrong posting. It is often simple laziness, the unwillingness to carefully check what one is doing. I am copying this for my employees. Thanks!

Dr. Cherie

drbj and sherry from south Florida on February 11, 2010:

Yes, audits are a great way to learn about and prevent any potential errors. But be careful, youcanwin, about using the word "audit" too freely from now till tax ime. It's a sensitive subject with unfortunately a negative connotation.

Related Articles