Auditing Free notes for BCOM

Auditing by B. B. Baral,

 lect. In. Commerce

Jagatsinghpur, odisha

Good to talk:8249989782

bbbaral4200@gmail.com

Q1. What is  auditing ?discuss its  advantages or importance .

     

   Introduction : Audit refers to adherence to the books of accounts of a business unit. In simple words audit is  an examination of the books of accounts and vouchers of a business . it helps to know  that the Balance Sheets is properly drawn up, so as to give a true and fair view of the state of the affairs of the business and  the profit and loss accounts gives a true and fair view of the profit or loss for the financial period . 

Definitions:

In the language of Montgomery
Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify and report upon the facts regarding its financial operation and the result thereof.

In the language of Lawrence R. Dicksee
An audit is an examination of records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate. In some circumstances it may be necessary to ascertain whether the transactions are supported by authority

Advantages or importance of auditing

Auditing has the following advantages. 

1. Audit Helps To Detect And Prevent Errors And Frauds

An auditor's main duty is to detect and prevent errors and frauds,  trying  to avoid such frauds. So despite this is not  compulsory, almost all organisations conduct audit in order to detect and prevent errors and fraud. 

2. Audit Helps To Maintain Account Regularly

An auditor  demands explanations if accounts are not maintained properly. So, audit gives moral pressure on maintaining accounts regularly and properly. 

3. Audit Helps To Get Compensation

If there is any loss in the assets of business, insurance company gives compensation on the basis of audited statement of valuation made my the auditor. So, it helps to get compensation.

4. Audit Helps To Obtain Loan.financial institutions extend loan on the basis of audited statements. A business organization can avail loan considering the audited statement of last five years. So, an organization should make audit compulsory to obtain loan.

5. Audit Facilitates The Sale Of Business

Valuation of assets is made by the auditor. On the basis of valuation of assets and liabilities, businessman can sell his business. It helps to determine the price of business.

6. Audit Helps To Assess Tax

Tax authorities make  assessment of taxes on the basis of profit calculated by the auditor. In the same fashion sales tax authority calculates sales tax on the of sales shown in the balance sheet. 

7.Audit helps in comparison:

 Audit helps to compare books of accounts of current year with the accounting of the previous year. comparing the accounts of current with previous years helps to detect errors and frauds.

8. Audit Helps To Adjust Account Of Deceased Partner

Valuation of all the assets and liabilities of the business is made by the auditor while auditing books of account. Such valuation helps to clear the account of deceased partner.

9. Audit Helps To Present an evidence

If a  case is filed against the auditor regarding negligence, auditor can present audited report as an evidence to settle such case. So, it helps to present proof to settle such cases.

10. Audit Provides Information About Profit Or Loss

A businessman wants to know profit or loss of his business after a certain period of time. So, the owner of the business can get information about profit or loss after auditing the books of accounts.

11. Audit Helps To Prepare Future Plan 

After audit All the  financial statements are assumed true and correct. Such true and correct account helps to prepare for the future plans

12. Audit Helps To Increase Goodwill

Auditing shows the profitability and financial position of an organization which creates faith of public over the business. Thus, auditing helps to increase goodwill of an organization of auditing.