WHAT IS AUDIT?
“Audit is an examination of accounting records, undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they purport to relate.” Prof. Dickers
“Auditing is concerned with the verification of accounting data, determining the accuracy and reliability of accounting statements and reports.” R.R. Mautz
“Long range objectives of an Audit should be to serve as a guide to management's future decisions in all financial matters such as controlling, forecasting, analysing and reporting. These objectives help the business unit to improve its performance.” Arthur W. Holme
- Auditing is nothing but the systematic and critical examination and verification of the books of accounts. It can be undertaken throughout the year or periodically.
- The primary aim is to find out whether the financial statements exhibit a true and fair view of the business.
- Origin of the term audit is said to be in the Latin term audire which means to listen.
- Audit of accounts by a duty qualified chartered accountant is mandatory for the registered joint stock companies, public trusts, bigger co-operative societies and for income tax and VAT tax payers above a particular limit.
Objectives of Audit:
- To find the reliability of the financial position and profit and loss statement.
- To check whether the financial statements of the company present a true and fair view.
- To check whether the financial statements are kept as per the provisions of the relevant Act.
- Verification of the entries with the relevant documentary evidences.
- To check whether all the money received is accounted for or not and all the payments made have proper supporting documents.
- To conduct an independent review of financial statements.
- Auditor has to examine the prevailing internal control and internal check systems prevalent in the organisation and must check the arithmetical accuracy of the books of accounts.
- The auditor has to check the physical existence of various assets shown in the balance sheet and check whether they present a true and fair value.
- After checking the accounts the auditor has to express his or her personal judgement on the maintenance of the books of accounts.
- The company who audits its financial statements on a timely basis builds a good reputation and goodwill.
- Helps the stakeholders with decision making as audited accounts are considered more reliable.
- To detect and prevent frauds and errors.
The main difference between the two is that errors are generally committed due to lack of knowledge and are considered to be innocent, whereas, frauds are committed intentionally.
Advantages of Audit:
- Audited accounts are considered more reliable.
- Errors and frauds are detected in time.
- The management will write the accounts timely and take sufficient care to see that it’s accurate.
- The guidance of the auditor helps the management.
- Tax authorities, readily accept the audited accounts and the process of tax filing becomes less time consuming.
- Claim of loss from the insurance company is easily settled if the accounts presented are audited.
- There is quick sanctioning or approval of loans if the accounts are audited.
The Mysterious Power of Human Judgment in Auditing!
While AI is transforming the auditing profession, the human touch remains essential and irreplaceable. Auditors bring expertise, judgment and communication skills to the table, enabling them to provide valuable insights and recommendations. They bring a level of nuance and expertise that’s hard to replicate with AI alone. There is a mysterious Power of Human Judgment in Auditing.
Key Considerations:
Professional Skepticism: Auditors maintain a questioning authoritative mindset, critically, strategically and systematically evaluating evidence and identifying potential risks.
Correspondence: Auditors effectively communicate findings, providing clear recommendations and driving change.
Business Savvy: Auditors understand the organization’s business, identifying potential opportunities and risks.
The Future of Auditing:
Hybrid Approach: Combining AI and human expertise to enhance audit quality and efficiency.
Level-Up: Auditors develop skills in data analysis, critical thinking, and communication.
Strategic Insights: Auditors provide valuable insights, driving business growth and stakeholder trust.
The future of auditing is exciting, with technology and human expertise coming together to shape the profession.
Key Examples:
Contextual Understanding: Auditors understand the organization’s culture, industry and specific risks, enabling them to identify potential issues.
Analytical Inferences: Auditors evaluate evidence, identify biases and consider alternative perspectives.
Stakeholder Management: Auditors communicate complex findings to diverse stakeholders, driving action and change.
Real-World Implications:
Audit Quality & Accuracy: Human judgment enhances audit quality, reducing the risk of material misstatements.
Regulatory Compliance: Auditors ensure compliance with regulations, reducing the risk of fines and reputational damage.
Business Growth: Auditors provide insights that drive business growth, improve operations, and enhance stakeholder trust.
The human touch in auditing is essential for delivering high-quality audits that drive real value.
