Auditing is an examination of the books of accounts and vouchers of the business by an independent person who should be qualified for the job, in order to ascertain their accuracy.
Objectives of Auditing:
The basic objective with which auditing is done are:
- Verification of accounts and statements.
- Detection of errors or frauds.
- Prevention of errors or frauds.
The auditor is given a free hand to the books, accounts, statements enabling him to thoroughly check them and if satisfied to certify that books have been properly drawn up and represent a true view of the financial position of the business. He gives his special attention to the direction of errors which may be innocently or intentionally committed.
In the case of former the auditor discovers the errors by vouching the transactions and by comparing and tallying the balances between and amongst various books. But in the case of latter such errors are classified as frauds as it leads to defrauding the proprietors. The frauds could be detected by a thorough checking of the books and documents such as cash book, vouchers, invoices, wage sheets, etc.
Advantages of Auditing:
- It detects errors and frauds with suggestions for their prevention.
- To avoid such mistakes being committed the accounts are kept up-to-date.
- The parties feel confident of the audit report because it was done by an independent person or body.
- Accounts as audited stand authentic.
- The auditors are competent persons in the fields of accounts and financial laws so can render advice to management.
- In case of joint stock companies the director has no chance of taking undue advantages.
- Auditing accounts facilitates settlement among partners.