1. Principles of Auditing
Prepared by Sowmya.S
Assistant Professor, SNMV CAS

3. Auditing
The word audit derived from Latin word” Au- dire ” which means” to hear”.
Auditing is a process in which their is systemic and scientific examination of company accounts by a well qualified person.
Auditor can examine the books of accounts to ensure that accounts of the company is properly maintained or not. True and fair accounts of the company shows their financial position and deducting errors.

4. 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”.

5. Auditors Internal and External Auditors
External auditors come in from outside the organization to examine accounting and financial records and provide an independent opinion on these records. Law requires that all public companies have their financial statements externally audited.
Internal auditors work for the organization as internal employees to examine records and help improve internal processes such as operations, internal controls, risk management and governance.

6. Origin of Auditing
Auditing is derived from Latin word “audire” which means to hear.
The system of checking public accounts has been in existence for a long time.
Luca Pacioli in had given Two aspects that is receiving and giving aspects.
Luca also defined the duties and responsibilities of an auditor since then it is evolving.
16th, 17th and 18th century
19th century Joint stock companies
1913, Companies Act-made it obligatory
1918, Govt. of Bombay-training professional accountants
1949- Chartered Accountants Act-ICAI was set up

7. Features of Auditing 
Verification of activity – In auditing the auditor can verify the activity of company and before auditing of company accounts by qualified person the company examine their own accounts which is known as internal audit.
Examination of Accounts – In auditing process their is systematic and scientific process of examination of books of accounts by a qualified person.
Ascertain financial statements – The Auditor has to ascertain financial statements of the company by inspect, compare, check and review all financial vouchers.
Review of accounting system – Auditing is a review of accounting system and Internal control.

8. Principles of Auditing.
Auditor should be sincere.
Auditor should follow principle of auditing.
Auditor should properly examine company accounts.
Prevention and Detection of errors and frauds.

9. Objectives of Auditing
Primary Objectives
Subsidiary Objectives
Other Objectives

10. Primary Objective Examining the system of internal check.
Checking arithmetical accuracy of books of accounts, verifying posting, casting, balancing etc.
Verifying the authenticity and validity of transactions.
Checking the proper distinction between capital and revenue nature of transactions.
Confirming the existence and value of assets and liabilities.

11. Subsidiary Objectives
Detection and prevention of errors
Errors of principle.
Errors of omission.
Errors of commission.
Compensating errors.
Detection and prevention of frauds
Misappropriation of cash.
Misappropriation of goods.
Manipulation of accounts.
Under-or over-valuation of stock

12. Other objectives To provide information to income tax authority.
To satisfy the provisions of Companies Act.
To have a moral effect.

13. Types of Audits Financial Statement Audits
Evaluates correspondence between financial statements and GAAP
Operational Audits
Evaluates correspondence between org’s procedures and methods and criteria of efficiency and effectiveness
Compliance Audits
Evaluates correspondence between org’s operations and specific procedures or rules
Comprehensive Audits
An audit of all the major functional areas within a utility.

14. Advantages of auditing
Access to Capital Market
Lower Cost of Capital
Deterrent to Inefficiency and Fraud
Control and Operational Improvements