FINANCIAL AUDIT –A TOOL TO AVOID FINANCIAL FRAUDS
In today’s economic environment, information and accountability have vital role for any business to flourish. The information which the business organization provides should be accurate and reliable. To ensure the reliability and the accuracy, audit is not only necessary but is also indispensable.The most general definition of audit is an evaluation of a person, organization, system, process or projector product. As per Auditing and Accounting Standards (AAS – 1) issued by ICAI, Auditing involves the examination of financial information of any entity, whether profit oriented or not and irrespective of its size and legal form. The objective of audit is to express an opinion on person, organization, system etc. This can be achieved by evaluating the working process during an audit on test basis. The opinion regarding the reliability of financial information is expressed by a phrase ‘a true & fair view’. The opinion expressed by a certified accountant is neither for a particular assest or liability nor for income or expense, but a whole.
Modern definition of Audit
The modern definition of auditing as per ICAI is as follows:
‘Auditing is defined as systematic and independent examination of data, statements, records, operations and performances (financial or other wise) of an enterprise for a stated purpose. In any auditing situation, the auditor pursues and recognizes the proposition before lining for examination, collects evidence, evaluates the same and on the basis formulate his judgment which is communicated through his audit report.’
Traditionally the term audit is mainly associated with ‘audit of financial statements’. As the economy progressed the people accepted that anything could be audited. The following are the criterion’s necessary while auditing:
1. There should be verifiable facts.
2. After verifying the facts it should be compared with the objective criteria. This helps in expressing an opinion of the verified things with the criteria.
The ICAI has issued 34 AAS; except AAS 31, 32, 33 all others are applicable and mandatory for audits.
Audit systems should be in accordance with the generally accepted Auditing Standards set by governing bodies that regulate the profession. It only provides reasonable assurance (i.e which is based on some logical reasonings) for third parties or external users that financial statement presents a true and fair view of companies’ financial condition and results of operations. In audit the level of assurance is high but not 100% and moderate in case of review. The term ‘True and Fair view’ differs from auditor to auditor as it is a relative term.
Purpose of Audit
Objectives are the end results towards achievements of which efforts are directed. The audit objective means the end result which we get by under taking the audit process. The objectives of audit are (1) Primary objective (2) Secondary objective.
Primary objective is to examine the financial statements. In only gives express of opinion on truth and fairness of financial information. Secondary objective deals with detection of errors and frauds.
The auditor is concerned with fraudulent acts (acts performed with the intention of fraud) and not altogether with frauds, which can cause material misstatement in the financial statements.
Types of Audit
The professional auditing in India can broadly be classified under two heads: (a) Statutory Audit (b) Voluntary Audit. Statutory audit further can be classified into (i) Special Audit (ii) Cost Audit (iii) Tax Audit by independent Auditor (iv) VAT Audit. Statutory audit is done particularly to satisfy the legal obligations imposed by law. Voluntary audit is done only for our satisfaction. It is done only to verify the internal management systems are working properly or not.(to be continued……….)