MATUSHRI PUSHPABEN VINUBHAI VALIA COLLEGE OF COMMERCE

(AFFILIATED TO UNIVERSITY OF MUMBAI)

BORIVALI EDUCATION SOCIETY (BORIVALI)

INTRODUCTION, PLANNING AND TECHNIQUESOF

AUDITING

PRESENTATIONON

FY.BAFNAME : RIKESH B. CHAURASIAROLL NO. : 838 (A)

INTRODUCTION OF

AUDITING

EVOLUTION

The term audit is derived from the Latin term ‘audire,’ which means to hear.

Auditing is as old as accounting.

Landlords used to “hear” the position of accounts

In India the companies Act 1913 made audit of company accounts compulsory.

DEFINITION

Prof. L.R.Dicksee. "auditing is an examination of accounting records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate.

WHAT IS AUDITING?

Understood as an examination of accounting records

Is a written report on the examination of financial statements for a client

Auditor has to express his opinion

Auditor has to give his opinion

True and Fair position

BASIC PRINCIPLES OF AUDITING

Integrity

Objectivity and Independence

Skill and Competence

Confidentiality

Work performed by others

CONTINUE……

Planning

Documentation/Working papers

Audit evidence

Accounting system and Internal Control

Audit conclusion

OBJECTIVES OF AUDITING

The objective of audit can be divided into two parts:

Primary objective

Secondaryobjective

PRIMARY OBJECTIVE (MAIN OBJECTIVE)

To produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading or using them can have belief in them.

SECONDARY OBJECTIVES

1. To detect errors and frauds2. To prevent errors and frauds by the

deterrent and moral effect of the audit.3. Secondary objective is ensure the final

accounts tally with books of accounts.

WINDOW DRESSING In accounting , window dressing means

showing the books of accounts attractive. It means showing the wrong picture.

Amounts of profits and net worth are overstated in the Liabilities.

It is an act making a company look financially then it really is.

It is technique in accounting that is used to present the financial position of the company in a favorable.

MERITS OF WINDOW DRESSING

1. Existing Shareholders take advantage of window dressing.

2. There is considerable scope for window dressing in company’s published accounts.

DEMRITS OF WINDOW DRESSING

1. No true & fair view

2. Harmful to Investors

3. Hide inefficiency of the management

4. Withdrawal of Profits

5. Against the Law

SECRET RESERVES Reserve means part of the profits kept aside for

the future use.

Secret Reserve means part of the profits secretly kept aside for the future use.

OBJECTIVES

Misleads competitors

Hide abnormal profits

Manipulation by management

Legally allowed to Banks

HARMS OF SECRET RESERVES

No true & fair view

Harmful to investors

Undue benefit to management

Withdrawal of Profit

No check on asset

DISTINGUISH BETWEEN ACCOUNTING/AUDITING

Accounting/Auditing

1. Meaning2. Objective3. Scope4. Done by5. Responsibility6. Qualifications

ERRORS AND FRAUDS

INTRODUCTION

The primary objectives of Audit is to Determine whether the books of accounts are TRUE & FAIR.

The secondary objectives are Detection & Prevention of Errors & Frauds.

Accounts are said to be True and Fair only when they are from errors and frauds.

TYPES OF ERRORS

There are two types of Errors

Errors of Principle

Clerical Errors

TYPES OF FRAUDS

There are two type of Frauds:

Manipulation of Records

Misappropriations

AUDITORS RESPONSIBILITY TOWARDS ERRORS AND FRAUDS

Prime responsibility of management

Incidental objective of audit

Probability of Non-detection of errors & frauds

Indicators of errors & frauds

CARO 2003

THANK YOU………