Auditing is an examination of the accounting books and the relative documentary evidence so that an auditor may be able to find out the accuracy of figure and may be able to make report on the balance sheet and other financial statements which have been prepared from there. Briefly it is said that auditing is a critical examination of accounting books or records to find out their accuracy. So auditing begins where accounting ends.
The word
audit is derived from the Latin word (audire) which means to hear. An auditor
is a person to whom the receipts and payments of an establishment are read. He
examines the evidence i.e. books, accounts, and vouchers of the establishment.
But in certain circumstances it may be necessary for him to examine even actual
assets held. Because an audit is intended to be an independent examination. The
auditor must be independent. Many parties rely upon auditor’s reports in making
decisions for various purposes. The auditor must honest and when he reports
must have an honest belief that this report is true and that there are no
undisclosed reservation. He must also have the necessary skill and competence
to enable him to form a professional opinion on the financial statements. It is
important to remember that the examination must be such to enable the auditor
for report.
Difference between auditing and investigation:
Following are the points of difference in both the term:
1. Interested parties:
Audit is carried out on behalf of the shareholders. Investigation is conducted on behalf of the outsiders who want to know the financial position of the business.
2. Nature of work:
Audit is compulsory in case of Joint Stock Company because investigation is not compulsory shakes.
3. Nature of report:
Audit reports have certain shortcomings. While investigation reports are positive.
4. Submission of report:
The report of audit is submitted to these a shareholders while the report of investigation is submitted to the party appointed him for investigation.
5. Concern with financial policy:
Auditor has to state the fact about the financial policy of the company, whether it is followed or not. Investigation has no concern with it whether it was followed or not.
6. Net profit calculation:
In case of audit actual earning capacity or the not profit of the business is not calculated. While it is calculated in case of investigation?
7. Duplication:
Audited accounts are not audited again. Investigation may be conducted even the accounts are audited.
8. Checking method:
In case of audit test checks are applied but investigation is a through checking of books of account for a particular or number of years.
9. Time duration:
The audit of accounts usually covers the period of one year, whereas investigation generally covers several years i.e. three to seven.
10. Nature of object:
The object of auditing is to find out the correctness of the statements and a true and fair view about the affairs of business. But investigation is conducted for a particular object.
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