Audit Overview

The term audit is derived from the latin word 'Audire' which means to hear.In earlier days, an auditor used to listen to the accounts read over by an accountant in order to check them.
In the converse manner the Auditor reports the status of Financial Statements through his Audit Report thereby meaning that the users hear the status of financial statements through auditor.
An Audit is an independent examination of financial information of any entity , whether profit oriented or not, irrespective of its size or legal form,with a view to express an opinion thereon.(Definition of ICAI).

As per the defination of R.K. Mautz," Auditing is being concerned with the verification of accounting data with deterring the accuracy and reliability of accounting statements and reports"

Once the financial statements are prepared by the management ,it is necessary to check whether or not such statements fairly reflect the position of the entity. The process of such examination is referred as "Audit" and the person conducting Audit is known as "Auditor"

Users of  financial  statements 

 Management
Shareholders/Owners
Employees
Government
Suppliers
Customers
Prospective Investors

Functions of Audit

•Examination of:
      Accounting system and internal controls to ensure their correctness
      Books of accounts to ensure their arthemetical accuracy
      Documentary evidence to support books of accounts
      Appropriateness of recording and accounting policies
• Verification of Assets and Liabilities
•Ensuring compliance with relevant laws and regulations
• Checking whether or not financial statements give true and fair view.

Types of Audit

Statutory Audit
Voluntary Audit
External Audit
Internal Audit
Continuous Audit
Final Audit


Benefits

• Safeguards the financial interest of persons who are not associated with the management of the entity , whether they are partners or shareholders.

• Acts as a moral check on the employees from committing defalcations or embezzlement.

• Helpul in settling liability for taxes , negotiating loans and for determining the purchase consideration for a business.

• It is useful for settling trade disputes for higher wages or bonus as well as claims in respect of damage suffered by property , by fire or some other calamity.

• Audited accounts are of great help in the settlement of accounts at the time of admission or death of partner.