Nature, Scope and Significance of Auditing

NATURE, SCOPE AND SIGNIFICANCE OF AUDITING

MEANING FEATURES EVOLUTION
→ Derived from latin word audire ⇒ to listen
→ SA 200
• Evaluation and verification of RRA of Audit
evidence
• Analytical, critical and investigative review H IA Statutory Audit ⇒ 1913
Cost Audit ⇒ 1965
→ Systematic and independent examination
of
E
• Financial and non-financial information T Tax Audit ⇒ 1984

financial information
of S
• Standards for evalutation of information
• Competent, qualified and independent auditor
SCOPE
Determined by-

any entity
profit oriented
or not
any size
H A
• Ensures reliability of information and assertions • Terms of engagement
• Relevant legislation
for any legal form

K S • Pronouncements of ICAI

expression of an opinion
I
M
ASPECTS TO BE COVERED IN AUDITING [ACER]

A

↓
Accounting S
Compliance
↓
Examination
↓ ↓
Reporting
and
Internal Control
C
(develop understanding)
A with generally accepted
AS and Statutory regulations
(FS should be prepared in compliance)
records
(checking arithmetical
of books,

(communication
accuracy) of audit findings)

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CMA Inter Auditing Summary |1

 Nature, Scope and Significance of Auditing

OBJECTIVES OF AUDITING QUALITIES OF AN AUDITOR INHERENT LIMITATIONS OF AUDIT

SA 200 [DIL Se Human and Honest]  Test Nature of audit
→ To obtain reasonable assurance • Sound knowledge of various Disciplines
→ whether FS are free from MMS (law, economics, mathematics, finance etc.)
• Integrity, Objectivity and Independence I A Persuasive Audit Evidence
Inherent limitations of Internal
→ FS prepared as per AFRF
→ Report on FS • Knowledge of general principles of Law
T H Control
Use of Materiality
→ Communicate as per SAs
Objectives
(Eg., Companies Act, GST, Labour laws etc.)
• Basic Human qualities
(Eg., Discipline, Trustworthy etc.) S E
Primary
Opinion on True
Secondary
Detailed checking if
• Honesty
• Special features of entity
H A
and Fair view MS is suspected

K S
(Eg., Co-operative society, Insurance company etc.)

I
SIGNIFICANCE OF AUDIT

A M point of view

Legal
S Internal Control External Affairs
• Filing of ITR
• Borrowing externally
C
• Insurance claim statement
A • Discovering Errors and Frauds
• Moral check
• Advice to management
• Settlement of accounts
• Valuation of goodwill
• Future Trends
• Sales Tax Payment • Uniformity in accounts
• Action against bankruptcy
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2 |CMA Inter Auditing Summary

 Nature, Scope and Significance of Auditing

ADVANTAGES OF AUDIT

↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓
Protection of
shareholders'
Moral check
on employees
Alert and vigilant More reliable
employees accounts
Settlement of
accounts and
Detection of

H wastages IA Corporate
restructuring
Financial
assistance
interest disputes

E T (eg., mergers,etc.)

BASIC PRINCIPLES GOVERNING AN AUDIT [APIC SCORED]

S 
↓
Integrity,
↓
Confidentiality Skills and
↓ ↓
Work performed
H A ↓
Documentation
↓
Planning
↓
Audit
↓
A/C system
↓
Audit
Objectivity, Competence by

K S
Others Evidence and IC Conclusion
Reporting
Independence
I and

BASIS AUDIT
A M AUDIT V/S INVESTIGATION
INVESTIGATION
Meaning
S
Independent examination to ascertain True and Fair View Independent examination to ascertain any fact for special purpose
Scope
Evidence
Periodicity C A Wide
Persuasive
Routine (normally annually)
Narrow
Conclusive
Non-routine
Approach Non-suspicious Suspicious
Procedures Generally accepted audit procedures Extended audit procedures
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CMA Inter Auditing Summary |3

 Nature, Scope and Significance of Auditing

ACCOUNTING AND AUDITING

Accounting

RELATIONSHIP
Auditing  Basis
DIFFERENCE
Accounting
Auditing
Analyze events and transactions ⇒ Review client's IC System
Record and Summarize ⇒ Evaluate and obtain evidence
Meaning

H
and summarization IA
Collection, classification Analytical and Critical
examination
Make FS Assertions
Prepare FS
⇒ Determine Fairness
⇒ Prepare Audit Report
Timing
Measure
E T
On Occurence
Monetary
After occurence(postmortem)
Opinion
To Shareholders
Accounting is first
⇒ To Client
⇒ Auditing follows
Responsibility
End Product S Management
Compilation of records
Independent Person
Audit Report

H A
Independence
Statndards
For/under management
Accounting standards
Independent
Standards on Auditing

K S (AS, Ind AS) (SAs)

I
A M
S
C A
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4 |CMA Inter Auditing Summary