Key Points at a Glance

Auditing is the systematic, independent examination of financial records, statements, operations, and processes of an entity to determine whether they are accurate, fair, and compliant with applicable laws and standards. The term derives from Latin audire (to hear) — historically, accounts were "heard" (read aloud) for verification.

Primary objectives of auditing (as per SA-200, ICAI): (i) Detection and prevention of errors (unintentional mistakes); (ii) Detection and prevention of fraud (intentional misrepresentation); (iii) Expression of opinion on whether financial statements give a true and fair view in accordance with the applicable financial reporting framework.

Audit Programme: A detailed written plan prepared by the auditor specifying what to audit, how to audit, by whom, and by when. It includes a list of procedures, tests of controls, substantive procedures, and the time schedule. Functions as an instruction manual for the audit team and a record of work done.

Types of Audit by nature of examiner: (i) Statutory Audit — legally required; conducted by independent Chartered Accountant (for companies under Companies Act, 2013); (ii) Internal Audit — ongoing audit by employees or internal team; (iii) Government Audit — by CAG or internal government auditors; (iv) Tax Audit — u/s 44AB of Income Tax Act for turnover > ₹1 crore.

Social Audit: A process where a community or third party examines whether a government scheme or programme has achieved its social objectives — reaching the right beneficiaries, proper fund utilisation, community satisfaction. Mandated under MGNREGS (Mahatma Gandhi NREGS) — Gram Sabha conducts social audit of all works in their village.

Performance Audit (Value for Money Audit): Examines whether public resources have been used economically, efficiently, and effectively (the three 'E's). Goes beyond financial compliance to assess outcomes — did the programme achieve its intended results? Conducted by CAG of India on Central/State government programmes.

Efficiency Audit: Focuses specifically on whether resources (inputs) are being converted into outputs with minimum waste — same output with less input, or more output with same input. It is a component of performance audit. Measures input-output ratio for government activities.

Government Audit in India — CAG: The Comptroller and Auditor General of India (CAG) is a constitutional authority (Article 148) — the supreme audit institution. CAG audits accounts of the Union Government, State Governments, PSUs, and any authority receiving grants from Consolidated Fund. CAG reports are placed before Parliament/State Legislature.

Performance Budgeting: Links budgetary allocations to specific physical targets and outcomes. Each scheme specifies: input (money), output (physical deliverables), and outcome (impact on beneficiaries). Introduced in India from 1968-69 on ARC recommendation. Central government adopted Outcome Budget from 2005-06.

Zero Based Budgeting (ZBB): Each department justifies every item of expenditure from zero in every budget cycle — no automatic carryover of previous year's budget. Introduced by Peter Pyhrr at Texas Instruments, USA (1969). In India, adopted by Rajasthan (1987) and Central Government (partially). Eliminates "incremental budgeting" inertia.

Audit Report and CAG's key documents: (i) Union Government Finance Accounts — annual accounts of revenue and capital receipts/expenditure; (ii) Appropriation Accounts — actual spending vs parliamentary sanction; (iii) Audit Reports on Civil/Defence/Railways — department-specific; (iv) Report on Public Sector Undertakings.

Internal Controls and Audit: Internal audit evaluates the adequacy of internal controls — separation of duties, authorisation procedures, physical security of assets, reconciliation routines. The Institute of Internal Auditors (IIA) defines internal audit as "an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations."