The word audit comes from the Latin word “Audire,” which means “to hear.” The purpose of auditing is to confirm the financial status as stated in the financial statements. It is a review of financial statements to see if they present an accurate and fair picture of the company’s financial status and profit and loss. Auditing is the intelligent and critical examination of accounting data and statements for accuracy, adequacy, and dependability.
Definition of Auditing
Objective of Auditing
With the advancement of business procedures, the objectives of auditing are evolving. Previously, it was simply used to double-check receipts and payments for accuracy. The goals of auditing have been divided into two categories.
1. Main objectives:- The primary objective of auditing is to determine the financial condition and profit and loss statement’s veracity. The objective is to ensure that the accounts present a true and fair picture of the company and its operations. The objective is to check and prove that the balance sheet and profit and loss account are genuine and fair representations of the business’s financial status at a given date.The profit and loss account delivers a genuine and fair view of the p&l for the accounting period, whereas the balance sheet gives a true and fair assessment of the financial condition of the business. As a result, the main objective of auditing is to establish an impartial judgement and opinion regarding the accounts’ credibility, as well as the truth and fairness of the financial situation and operating results.
2. Subsidiary objective:– The following are the auditing’s secondary objectives or subsidiary objectives:
Detection and prevention of fraud:
1.Detection and prevention of fraud is an important auxiliary purpose of auditing. Fraud is defined as the deliberate misrepresenting of financial data. Manipulation, falsification, or manipulation of records or papers are all examples of fraud.
2. Asset misappropriation.
3. Transactions with no substance are recorded.
4. Accounting policies are being applied incorrectly.
2. Error detection and prevention:Another essential objective of auditing is to prevent fraud. Auditing ensures that the financial statement is free of errors. Errors can be found by thoroughly reviewing and vouching books of accounts, ledger accounts, vouchers, and other relevant information.