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ATD 012: Principles Of Auditing
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1.1.1 Auditing

  • Auditing is 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.

1.1.2 Auditor

  • An auditor is an independent professional who examines and verifies the accuracy of a company’s financial records and reports.
  • Auditors are responsible for ensuring that financial statements are accurate and in compliance with various laws and regulations. Auditor’s also provide assurance that an organisations financial statements are free from misstatements and fraud.
  • An auditor measures the level of accuracy and clarity of a set of accounts to determine whether the company’s financials are ‘honest’. Auditors are responsible for examining and preparing financial documents and writing reports on their findings. As part of an audit, face-to-face meetings with managers and clients are also included.

An auditor typically does the following:

  • Ensures that financial statements are accurate
  • Verifies that financial statements are compliant with laws and regulations
  • Prepares tax returns and calculates taxes owed
  • Maintains accurate and timely tax payments
  • Assesses the efficiency of accounting records and systems
  • Establishes and maintains financial records
  • Advises management on best practices
  • Makes recommendations for reducing costs, increasing revenue, and improving profits
  • Depending on the company they work for, auditors often specialise in different areas. They may focus on assurance services (improving or clarifying information that decision-makers can understand) or risk management (determining the likelihood of financial documentation misstatements). Auditors may also specialise in specific industries, such as retail or 

1.1.3 An audit.

  • Definition: Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organisation.
  • Description: Audit can be done internally by employees or heads of a particular department and externally by an outside firm or an independent auditor. The idea is to check and verify the accounts by an independent authority to ensure that all books of accounts are done in a fair manner and there is no misrepresentation or fraud that is being conducted.
  • All the public listed firms have to get their accounts audited by an independent auditor before they declare their results for any quarter.
  • There are four main steps in the auditing process. The first one is to define the auditor’s role and the terms of engagement which is usually in the form of a letter which is duly signed by the client.
  • The second step is to plan the audit which would include details of deadlines and the departments the auditor would cover. Is it a single department or whole organisation which the auditor would be covering. The audit could last a day or even a week depending upon the nature of the audit.
  • The next important step is compiling the information from the audit. When an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a systematic manner.
  • The last and most important element of an audit is reporting the result. The results are documented in the auditor’s report.
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