Once we complete preparing the final statements and accounts for the year the accounting process is over. However, we still cannot be completely certain of the accuracy of these accounts. This is when the concept of auditing comes in. Let us see the audit meaning and features of an audit.
The word “audit” is a very generic word, it essentially means to examine something thoroughly. But we will be learning about auditing as it relates to accounting and the finance world. So audit meaning is the thorough inspection of the books of accounts of the organization.
This involves the examination of vouchers and the verification of various assets of the organization. And the person who carries out such an audit is known as the auditor.
The International Federation of Accountants has given the following definition of an audit, “audit is an independent inspection of the financial information of any organization, whether profit-oriented or not profit-oriented, irrespective of its legal form, status or size when such examination is conducted with a view to express an opinion thereof”.
The one important thing to remember is that an audit is a close inspection of the books of accounts, but it does not absolutely guarantee error-free books. The auditor only expresses his opinion on the accuracy of the books, he does not give his opinion on the financial status of the company or predict its future.
If he is satisfied with the examination then he will state that the financial accounts are true and fair, which means they are absent of any material misstatement. But this is not an opinion about the financial status of the company.
(source – ipleaders)
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Features of an Audit
- Auditing is a systematic process. It is a logical and scientific procedure to examine the accounts of an organization for their accuracy. There are rules and procedures to follow.
- The audit is always done by an independent authority or a body of persons with the necessary qualifications. They have to be independent so their views and opinions can be totally unbiased.
- Once again, an audit is the examination of all the books of accounts and financial information of the company. So it is essentially a verification of the final accounts of the organization, i.e. the profit and loss statement and the balance sheet at the end of the financial year.
- Auditing is not only the review of the books of accounts but also the internal systems and internal control of the organization.
- To conduct the audit we need the help of various sources of information. This includes vouchers, documents, certificates, questionnaires, explanations etc. He may scrutinize any other documents he sees fit like Memorandum of Association, Articles of Associations, vouchers, minute books, shareholders register etc.
- The auditor must completely satisfy himself with the accuracy and authenticity of the financial statements. Only then can he give the opinion that they are true and fair statements.
Solved Question for You
Q: What are the main types of functional audits?
Ans: The main types of functional audits are,
- Propriety Auditing
- Efficiency Auditing
- Operational Auditing
- Voucher Auditing
- Statutory Auditing
- Social Auditing
- Cost Auditing