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Program : MBA
Semester : III
Subject Code : MF 0013
Subject Name : Internal Audit and Control
Unit number : 1
Unit Title : Auditing Today
Lecture Number : 1
Lecture Title : Auditing Today
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Unit-1 Auditing Today
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Auditing Today
Objectives :

Discover the evolution of Auditing.
Have a brief idea of development of Auditing in India.
Define Auditing
Understand the objectives, scope and philosophy of Auditing
Explain the requisite qualifications and qualities of an Auditor
Describe the advantages and limitations of Audit

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Unit-1 Auditing Today
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Lecture Outline
Introduction
Evolution of Auditing
Development of Auditing in India
Definitions
Objectives of Auditing
Scope of an Audit
Philosophy of Auditing
Qualifications of an Auditor
Qualities of an Auditor
Advantages of Audit
Limitations of Audit
Activity
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Introduction
An audit can be defined as an evaluation of
an organization, system, process, project or
product

Audit may be classified as
o statutory audit
o internal audit and
o private audit

In this unit, we will discuss about the role of
auditing in todays business environment





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Source: ifians.com
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Unit-1 Auditing Today
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Evolution of Auditing
In ancient times the accounts of an estate were checked by hearing the
business records by the person authorized to do so
Mauryan, Greek and Roman empires, controlled the public revenue and
expenditure
Industrial revolution in the 18th century and advent of joint stock
companies necessitated an independent statutory review of the accuracy
and reliability of the Books of Accounts
British Companies Act in 1862 gave auditing profession a statutory
recognition







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Auditors in Ancient India
evolution
Auditors now
Source: fastceus.com
Source: flipkart.com
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Unit-1 Auditing Today
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Development of Auditing in India
1913 - Companies Act of 1913 made mandatory, the compulsory audit
with specific provisions as to maintenance of Books of Accounts,
contents of the Balance Sheet etc.
1930- The accounting profession was brought under the control of Central
Government to ensure uniformity in standards throughout the country
1949- Parliament enacted the Chartered Accountants Act and the Institute
of Chartered Accountants of India (ICAI) was established
1956- A new Companies Act replaced the Act of 1913
1959- Cost and Works Accountants Act enacted
1984- Income Tax Act, 1961 was amended to provide for compulsory audit
of accounts












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Definitions
The independent examination of financial information of any entity,
whether profit oriented or not and irrespective of its size, or legal form,
when such an examination is conducted with a view to expressing an
opinion thereon.
International Auditing Practices Committee

Auditing is a systematic and independent examination of data,
statements, records, operations and performance (financial or otherwise) of
an enterprise for a stated purpose. In any auditing situation, the auditor
perceives and recognizes the propositions before him for examination,
collects evidence, evaluates the same and on this basis, formulates his
judgment which is communicated through his audit report.
Institute of Chartered Accountants of India








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Objectives of Auditing

Primary objective:
to examine the reliability and validity of the financial statements so as
to render an opinion on the truthfulness and fairness of the
presentations in those statements.



Secondary objective:
to detect and prevent the errors and frauds.





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Scope of an Audit
1. A depth study of accounting and internal control system.

2. A depth examination of Books and Accounts and other relevant records.

3. Ensuring compliance with the Generally Accepted Accounting Standards,
Auditing Standards and applicable statutory regulations.

4. Reporting to clients






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Unit-1 Auditing Today
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Philosophy of Auditing






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Evidence
Due audit care
Fair presentation
Independence
Ethical conduct
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Unit-1 Auditing Today
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Qualitifications of an Auditor
1. A person who is a Chartered Accountant within the meaning of the
Chartered Accountants Act, 1949 and holds a certificate of practice.

Or

2. A partnership firm where all the partners are Chartered Accountants holding
certificate of practice may also be appointed as an auditor of a company.

Or

3. A person holding a certificate under the Restricted Auditors certificate (Part
B States) Rule, 1956 is also qualified to be appointed as an auditor.






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Unit-1 Auditing Today
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Qualities of an Auditor
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Common sense
Independence
Honesty and Integrity
Objectivity
Communication
Tactfulness
Awareness of latest developments
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Advantages of Audit






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1. It facilitates the early detection and easy prevention of fraud and errors.

2. It helps in reducing wastages and chances of losses or damage to
business property.

3. Banks, financial institutions and Government required audited accounts
before granting any financial assistance to the enterprises.

4. Liability of the enterprise as to income tax, wealth tax, VAT, etc can
easily be determined on the basis of audited accounts as these are
readily believed by the tax authorities. The Income Tax Act also contains
a provision for holding tax audit.

5. Audited accounts help in determining purchase consideration of
enterprise in case of outright sale, merger and acquisition etc.
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Unit-1 Auditing Today
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Limitations of Audit
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Postmortem
of
accounts
Test nature
of audit
Inherent limitations
of
internal control
system
C o n f i d e n t i a l
Unit-1 Auditing Today
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Activity
Activity 1
Go to the website given below and develop your understanding upon
Effectiveness of the Public Audit System in India:
www.humanrightsinitiative.org/.../effectiveness_of_the_public_audit_system_in_india.pdf

Activity 2
Read in detail about Auditing fair value by visiting the given website
http://www.thehindubusinessline.com/2010/06/10/stories/2010061050841100.htm


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