MODULE-1

<?>Auditing is the verification of the accuracy and correctness of the books of accounts by
independent persons
Objectives of Auditing
I. Primary objective:::The main objective of audit is to verify the accounts and to report whether the
Profit and Loss Account and Balance Sheet are properly drawn up according to the Companies Act
and they exhibit a true and fair view of the state of affairs of the concern.
II. Secondary or Incidental objectives:While examining the books of accounts and documents,
certain errors and frauds may be detected by the auditor.
1…,<?>Detection of errors:Accounting errors are mistakes and omissions made unknowingly while
recording transactions in the books of accounts.
a. Errors of principle:Errors of principles are those errors which arise on recording the transactions
in contravention to accounting principles. The accounting principles are violated either knowingly or
unknowingly while recording the business transactions.B.Errors of omission:Errors of omission are
those errors which arise when one fails to enter a transaction in the books of original entry
C.Errors of commission:Errors committed when transactions are incorrectly recorded are called
errors of commission.
2. Detection of Frauds:frauds is an intentionally committed mistake to defraud the proprietors of the
concern.i. Misappropriation or embezzlement of cash.iI. Misappropriation of goods. adiumatin
Ii. Falsification or manipulation of accounts.
i. Misappropriation or embezzlement of cash:Misappropriation or embezzlement of cash means
fraudulent appropriation of cash belonging to another person by one who handles
2.Misappropriation of goods:The chances of misappropriation of goods are greater in the case of
goods which are less bulky but are more valuable ones.3.. Manipulation or Falsification of
AccountsFalsification of accounts without misappropriation is not as common as misappropriation
3. Reporting to the Management::Besides detection of errors and frauds, auditor has to
take steps to prevent their occurrence.
4. Prevention of Errors and Frauds::Errors and frauds can be prevented by the application of sound
system of internal control and efficient management of the concern.
Type of audit
1.>Statutory Audit::An audit made compulsory by law in an enterprise is known as statutory audit.,
statutory audit is a legally required audit of accuracy of the financial records of business concerns.
2.. Internal Audit:Internal audit is a review of operations and records undertaken within a business by
specially assigned staff of the organisation.4. Final Audit:Final audit is an audit which is commenced
and completed in a single uninterrupted session at the close of the financial or trading period after the
closure of books of accounts and the preparation of financial statements.5. Interim Audit:An audit
conducted in between two annual audits is called interim audit.6. Cost Audit:Cost audit is the audit of
cost records to verify that the cost statements are property drawn up and they present a true and fair
view of the cost of production and marketing of various products dealt with by the undertaking
.7. Management Audit:Management audit means a periodic review of the business to ensure sound
and healthy business activities which covers all areas of management like planning, organising,
8.Government Audit:Government audit is the systematic and professional examination on financial,
administrative and other operations of a public entity, government company.9.Tax Audit:Audit of
financial accounts for satisfying the income tax authorities is called Tax Audit.
10. Performance Audit”:Performance Audit is an independent examination and evaluation of plans,
procedures, policies, programmes and operations formulated by the management.
<?>Concept of True and Fair view:The "true and fair view" in auditing means that the financial
statements are free from material misstatement and faithfully represents the financial performance.
<?>>.Continuous Audit:Audit work done in an enterprise continuously through out the course of
the accounting year at regular or irregular intervals is called continuous audit.
<?> ADVANTAGES OF CONTINUOUS:1.Early and easy discovery of errors and frauds: In a
continuous audit the auditor checks the accounts in a detailed manner at regular intervals.
2.Quick presentation of accounts: The accounts are checked round the year. So it becomes easily
possible to present the audited final accounts to the share holders.3.Enforces regularity in
accounting: Frequent visits by the auditor to the client's office makes the client's staff
regular.4.Familiarity with technical details: The auditor's regular contact with the client's business
enables him to be familiar with all the technical aspects of the business.5.Moral check: The frequent
visit by the auditor acts as a valuable moral check on the staff.6.Declaration of interim dividend: If
the management desires to declare interim dividend, they can do so as properly audited
<?>DISADVANTAGES: 1.Alteration of audited figures: Dishonest employees of the client may
alter the figures after the auditor has checked them. It is done in order to commit or hide a fraud.
2.Interruption of clients work: The frequent visit by the auditors are likely to dislocate the work of his
client there by causing inconvenience to him.3.Loss of link in work: Audit staff may lose the link in
work as the work is not completed in one sitting.4.Leads to unhealthy relationship: It is likely that
the frequent visit of the auditor may lead to unhealthy relationship between him and the clerks.
5.More expensive: Continuous audit is an expensive affair as it involves payment of higher fees to
the auditor for his frequent visits.6.Mechanical: In continuous audit the work of the auditor becomes
mechanical.
MODULE-2
<?>Audit Programme:An audit programme is a written plan containing exact details with regard to
the conduct of a particular audit. It is the auditor's plan of action. An audit programme is a set of
procedures specially designed for each audit.
Features of Audit Programme
<?>An audit programme should be drawn up by the auditor himself.<?>It should always be in writing.
<?>It should be prepared before the commencement of the audit<?>A separate audit programme
should be drawn up for every individual audit.<?>It should indicate the distribution of the work among
the audit staff. Objectives of Audit Programme
<?>To ensure that no part of the audit work has been omitted.<?>To ensure proper distribution of
work among the audit staff.,<?>To provide clear instruction to the audit staff.<?> To enable the auditor
to have a proper control over the entire audit work.
Advantages of Audit Programme
<?>It assists in controlling the work and establishing responsibility.<?>The auditor can know about the
progress of the work done by his staff at any time.<?>It provides guidelines to the audit staff for the
performance of the audit work allotted to them.<?>It facilitates the conduct of audit work by several
audit assistants simultaneously.<?>It facilitates proper distribution of work among the audit staff.
<?>It helps to complete the audit work within the scheduled time.It facilitates continuity in the audit.
<?>AUDIT PROCEDURE-The method of work to be adopted by a particular auditor based on his
individual training and a. experience and the circumstances of each case is known as Audit.
<?> Audit Note Book::An Audit Note Book is a book, register or diary maintained by the audit clerk
duri the course of audit for recording his observations of audit, the points to be discussed w the
auditor, the points which require further clarification etc.
<??>Routine Checking:The checking of common books and records maintained by any
organisation irrespective of its size, constitution and nature of activities by an auditor as a matter of
routine is known as Routine Checking.1.:Checking of castings, carry forwards and other calculations
in the books of original entry.2.Checking of postings in the ledger.3.Checking of balances in the
<??>Internal check1.It is an automatic review of operations.2.The work of one clerk is checked by
another at the same time.3.Its aim is prevention or minimisation of errors and frauds.4.This is
performed by the regular employees and no special staff for checking purposes.4.Its scope is quite
limited.5.It is a device for doing the work.
<??>internal Audit.1It is an independent review of operations.2.The work of a clerk is checked only
after the work is over.3.Its aim is detection of errors and frauds.4.This is performed by a separate
salaried staff called internal auditors.5.Its scope is comparatively quite broad.6.It is a device for
checking the work.
 MODULE-5
<?>Investigation is an integral part of auditing. It is a process of gathering, verifying and evaluating
evidence in order to ascertain facts and draw conclusions. This process is different from the process
of auditing. Auditing is a systematic and logical examination of the books, accounts, records and other
documents of the organization
Investigation vs. Auditing
…….<?>Investigation is a process of examining and researching facts and evidence to gain an
understanding of a particular situation.<?>To provide an opinion on the fairness of financial
statements.<?>Internal & external audits usually include financial and operational aspects.
<?>Can make judgments about the accuracy of financial data.<?>Audits are conducted on a regular
basis.<?>The outcome of an audit is usually expressed in the form of an opinion letter.
…..<?> Auditing is the process of examining a company's financial records, verifying accuracy, and
ensuring that all legal requirements are met.<?> To uncover evidence of fraud, corruption and other
irregularities.<?>. Investigations may include interviews and physical evidence such as documents,
emails, and other digital records.<?>Can not make any judgments about the accuracy of the data.
<?>Investigations are conducted when a specific issue is identified.<?>The outcome of an
investigation is usually expressed in the form of a report.
Types of Investigation
There are two main types of investigation. The first type is investigative auditing, which is conducted
to ensure that the financial statements of an organization are accurate and in compliance with
applicable laws and regulations
1.investigation on acquisition of running business??//2.investigation when fraud is suspected
1. Investigation on Acquisition of Running Business This type of investigation is conducted when
a business is acquired by another entity to determine its financial position and to identify any liabilities
or hidden costs.<?>>? Investigation on acquisition of running business is conducted to determine the
accuracy and completeness of financial statements and other records of the business. The purpose of
such investigation is to ensure that the buyer is not entering into any transaction with hidden liabilities
or undisclosed facts. The investigation may include reviewing documents and other records, analysing
financial statements and other financial records, and conducting interviews with various stakeholders.
2.. Investigation when Fraud is Suspected This type of investigation is conducted to identify and
investigate any fraud or misappropriation of funds or assets. It involves the examination of records
and documents to determine if fraud has occurred.<?><>? Investigation when fraud is suspected is
conducted to determine the facts and circumstances of the fraud and to identify the person or persons
responsible. The investigation may include reviewing documents and other records, analysing
financial statements and other financial records, and conducting interviews with various stakeholders.
The investigation may also involve tracing the flow of funds, analysing bank records, computer
forensics and other methods of obtaining evidence
<?>Misappropriation of goods is a type of fraudulent activity in which an individual or entity
takes or uses goods belonging to another without the owner’s consent. Investigation in such cases is
conducted to determine the facts and circumstances of the misappropriation and to identify the person
or persons responsible
<?>Misappropriation of CASH
<?>Manipulation of accounts
 MODULE 4_—Types of Audit
Report An audit report of a joint stock company shall be issued by the auditor. The audit report shall
provide an objective opinion on the true and fair view of the financial statements of the company. The
types of audit report that can be issued by the auditor are unqualified, qualified, adverse and
disclaimer of opinion.
1. Unqualified Audit Report – An unqualified audit report is issued when the financial statements of
the company are free from any material misstatements and the auditor has no reservations regarding
the financial statements 2. Qualified Audit Report – A qualified audit report is issued when the
auditor has some reservations regarding the financial statements of the company
3. Adverse Audit Report – An adverse audit report is issued when the financial statements of the
company are not free from material misstatements 4.Disclaimer of Opinion – A disclaimer of opinion
is issued when the auditor is unable to form an opinion due to some limitation or restriction imposed
by the company Qualifications and Disqualifications of Auditors
1. Qualifications for Auditors:In order to be appointed as an auditor for a joint stock company, the
individual must meet all the qualifications as per the Companies Act 2013. These qualifications
include.<?>>?• Being a Chartered Accountant in India •<??>Being a firm of Chartered Accountants in
India • Being eligible to be appointed as an auditor under the Act •<?>>< Being in whole-time practice
<?><<• Not being disqualified under any law for the time being in force ,?><• Having experience in
auditing of companies ,?<?>• Having passed an examination conducted by the Institute of Chartered
Accountants of India<?>< • Having at least five years of experience in the field of auditing, accounting
or financial management 2 .Disqualifications for Auditors
<?> An auditor of a joint stock company will be disqualified if he/she falls under any of the following
categories:<?> • If he/she or any partner of the firm has been convicted of an offence involving fraud
or dishonesty<?>> • If he/she or any partner of the firm is a partner or an employee of the company or
its holding, subsidiary or associate companyM<>> • If he/she or any partner of the firm is a director in
the company, its holding, subsidiary or associate company •<?> If he/she or any partner of the firm is
an officer of the company, its holding, subsidiary or associate company <?>• If he/she or any partner
of the firm is in the employment of the company, its holding, subsidiary or associate company
Appointment, Remuneration and Removal of Auditors
<?>Appointment of Auditors The appointment of an auditor for a joint stock company must be
approved by the Board of Directors and ratified by the shareholders in the Annual General Meeting.
The auditor must then be registered with the Registrar of Companies.
><?? Remuneration of Auditors The remuneration of an auditor of a joint stock company will be
determined by the Board of Directors and ratified by the shareholders in the Annual General Meeting.
The remuneration must be paid within 30 days of the receipt of the auditor’s report.
<?> Removal of an Auditor An auditor of a joint stock company can be removed with the approval of
the Board of Directors and ratification by the shareholders in the Annual General Meeting. The auditor
can also be removed by the Central Government, if they are found to be not eligible or disqualified to
continue as an auditor. Powers, Duties and Liabilities of Auditors 3.
<?> Powers of Auditors An auditor of a joint stock company shall have the power to:<?> Examine
the books and accounts of the company<?> • Access all information related to the company, such as
contracts and documents<?> • Examine the assets of the company<?> • Make inquiries from the
officers of the company<?> • Make investigations into any matters related to the company
<?>Duties of Auditors The duties of an auditor of a joint stock company shall include:<?> • Verifying
the accuracy of the financial statements of the company<?> • Verifying that the assets of the company
are properly recorded and safeguarded from loss<?>• Verifying that the transactions of the company
are in accordance with the Companies <?>.Liabilities of Auditors
The auditor of a joint stock company shall be liable to the company and its shareholders for any
damages caused due to any negligence or willful misconduct. The auditor shall also be liable to the
company and its shareholders for any losses suffered due to any false or misleading statement given
in the audit report.
 Module 3: Vouching
Vouching is the process of examining documentary evidence to support a transaction. It involves the
examination of documents such as invoices, delivery notes and cheques. The purpose of vouching is
to ensure that the transactions are valid and have been recorded correctly.
importance of vouching
Vouching is an important aspect of auditing as it provides evidence to support the accuracy and
validity of a transaction. Vouching also helps to identify any irregularities or fraud in a transaction
<?>Vouchers A voucher is a document which provides evidence to support a transaction. Examples
of vouchers include invoices, delivery notes, and cheques. The purpose of vouchers is to provide
evidence to support the accuracy of a transaction and to identify any irregularities or fraud.
<?>Requirements of a voucher
• The voucher must be complete and accurate. • The voucher must be properly authorized and
signed. • The voucher must be dated correctly. • The voucher must be supported by other documents,
such as delivery notes and invoices. • The voucher must be legible.
<?>Verification Verification is the process of confirming the accuracy of the details of a transaction.
It involves examining documents such as invoices, delivery notes, and cheques to ensure that they
are valid and have been recorded correctly.
Difference between vouching and verification
<?>Vouching and verification are both important aspects of auditing and they have some similarities,
however, they are not the same. The main difference between vouching and verification is that
vouching involves the examination of documents to support a transaction, while verification involves
the confirmation of the accuracy of the details of a transaction.
Principles of verification
: • All transactions should be verified. • The verifier should be independent of the person making the
transaction. • The verifier should have the necessary knowledge and skills to verify the transaction. •
All documents related to the transaction should be verified. • All records and documents should be
compared with each other.
<?>Valuation of assets Valuation of assets is the process of determining the value of an asset. It
involves examining documents such as invoices, delivery notes, and cheques to determine the value
of an asset. Valuation is an important aspect of auditing as it helps to ensure that the value of an
asset is accurately reflected in the accounts.
Difference between verification and valuation
<?>Verification and valuation are both important aspects of auditing, but they are not the same. The
main difference between verification and valuation is that verification involves the confirmation of the
accuracy of the details of a transaction, while valuation involves the determination of the value of an
asset.
<?>Verification of assets and liabilities Verification of assets and liabilities is the process of
confirming the accuracy of the details of a transaction. It involves examining documents such as
invoices, delivery notes, and cheques to ensure that the assets and liabilities are recorded correctly.
<?>Precautions in verification of assets and liabilities
• All documents related to the transaction should be examined. • The verifier should be independent
of the person making the transaction. • All records and documents should be compared with each
other. • The verifier should have the necessary knowledge and skills to verify the transaction. • The
verifier should be alert to any irregularities or discrepancies.
<?>Internal check is a method of organising the accounting system of a business concern or a
factory by which the duties of various clerks are arranged in such a way that the work of one person is
automatically checked by another.
Objectives of Internal Check
1.To detect errors and frauds easily and quickly.2.To prevent the commission of errors and frauds.
3.To prevent the misappropriation of cash and goods.4.To fix responsibility on a particular person
when a fraud or error is detected.5.To increase the efficiency of staff by proper assignment of duties.
6.To have an accurate record of all the business transactions.
Principles of Internal Check
1.There should be proper division of responsibilities of each member of the staff.
2.The division of work should be based on the capacity and capability of each individual member.
3.There should be no over-lapping or duplication of work at any level.
4.Division of work should be so designed that no single individual is allowed to perform any work
single handed from beginning to end.5.The duties of the staff member should be frequently changed
without prior notice.6.Employees should be given clear-cut instructions to perform their work in an
orderly and efficient manner.7.At Least once in an year, each employee should be allowed to go on
leave.8.Cash receipts should be daily deposited in the bank.9.Periodical verification of cash and bank
balance should be arranged.10.There should be effective control over all purchases, receipts and
issue of goods.11.The annual stock taking and pricing should be done by staff of other sections.
12.There should be a proper system of filing vouchers, correspondence etc. in the business.
13.Correspondence with debtors and creditors should be under the charge of a responsible officer.
Advantage of internal check
1.It entails a proper and rational distribution of work between staff members of a business.
2.It helps in the early detection of errors and frauds.3.It minimises the possibilitiés of commission of
errors and frauds.4.It increases the efficiency of work in a business.5.It helps the auditor in reducing
his work to a great extent by relying on test checking.6.It helps the owners to rely upon the
genuineness and accuracy of accounts.
Disadvantages of Internal Check
1.It is very expensive and time consuming.. It can be applied only in a relatively larger concern.
2..The auditor may not carry out a thorough and detailed verification of accounts because he relies
much on test checking..It may lead to non-disclosure of certain important irregularity in the accounts.
3.If the whole system of internal check is not properly organised, it may create chaos and disorder in
the working of a business.
Internal Control
The internal control means the whole system of controls established by the management In the
conduct of the business. It includes both financial and administrative controls.
Purpose or need for Internal Control
1, Reduction in quantum of work: To help the auditors in reducing the quantum of work and to allow
them to concentrate on selected weaker areas.2 flow of work; Providing the flow of work through
various stages.3.Efficiency: To help in the orderly and efficient conduct of the business.
4.Optimum use: To aim at optimum use of the resources of the business.5.Check on errors: Ensuring
prevention and detection of errors of business.
Role of management with regard to Internal Control
1. The management is responsible for devising and installing internal control.2.The management is
vested with the responsibility of carrying on the business, safeguarding its assets and recording the
transactions in the books of account and other records.3.The management is responsible for
maintaining an adequate accounting system incorporating various internal control to the extent
appropriate to the size and nature of the business.4.The management has to review the installed
internal control system
<??.>Audit Documentation
Audit documentation is the written record of the planning and performance of the work, the
procedures performed, evidences obtained and conclusions reached by the auditor.