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Society, Management and Accounting

Meaning, Definition & Objectives of Auditing

Auditing: Meaning, Objectives, Programme, Social Audit, Performance Audit, Efficiency Audit, Government Audit

Paper I · Unit 3 Section 3 of 10 0 PYQs 22 min
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Meaning, Definition & Objectives of Auditing

2.1 Meaning and Evolution

The word "audit" derives from the Latin word audire - "to hear." In ancient Rome and medieval England, public accounts were literally read aloud (heard) before a committee to verify their correctness. Over centuries, as written accounts became the norm, auditing evolved into a systematic examination of records.

Definitions:

  • Spicer and Pegler: "An audit is such an examination of the books, accounts and vouchers of a business as will enable the auditor to satisfy himself that the Balance Sheet is properly drawn up so as to give a true and fair view of the state of affairs of the business."
  • Montgomery: "Auditing is a systematic examination of the books and records of a business or other organisation, in order to ascertain or verify and to report upon facts regarding its financial operations and the results thereof."
  • Institute of Chartered Accountants of India (ICAI): As per SA-200, the objective is "to enhance the degree of confidence of intended users in the financial statements."

2.2 Objectives of Auditing (as per IAASB / SA-200)

As asked in 2023 Q42 (4 objectives) and Q44 (elements per IAASB):

Primary objective:

  • Express an opinion on whether the financial statements give a true and fair view in accordance with the applicable financial reporting framework.

Secondary objectives:

  • Detect errors: omission, commission, principle errors, and other unintentional mistakes
  • Detect and prevent fraud: defalcation, falsification of accounts, and window dressing
  • Verify compliance: ensure adherence to the Companies Act 2013, Income Tax Act, SEBI regulations, and applicable accounting standards

Elements of Auditing (as per IAASB - asked in 2023 Q44):

  1. Three-party relationship: Management (prepares financial statements) - Auditor (examines and reports) - Intended users (use the auditor's report)
  2. Subject matter: Financial statements prepared by management
  3. Criteria: Applicable financial reporting framework (Ind AS, GAAP)
  4. Audit evidence: Sufficient and appropriate evidence gathered
  5. Audit report: Written report expressing opinion