The objectives of an audit of financial statements is to enable the auditor to express his view whether the financial statements are prepared, in all material respects, in accordance with an identified reporting framework.
1. Primary objectives:
a. Fairness of statements:
The purpose of auditing is to determine the fairness of statements. The financial statements can show true and fair view after auditing. Due to limitations of financial statements it is not possible to provide cent percent accuracy. So an attempt is made to show fair view of financial statements.
b. Prescribed laws:
The propose of audit is to check that prescribed laws have been followed in preparation of financial statements there are various laws that govern the working of many businesses. The auditor can indicate whether the prescribed laws were followed in the preparation of final accounts.
c. Accounting policies:
The purpose of auditing is to examine the accounting policies. There is need to follow the accounting policies for preparing accounting records. The effective accounting system can provide better results. The auditor can express an opinion on the accounting policies in the best interest of business.
d. Independent opinion:
The purpose of audit is to show an independent view. The auditor must be true or honest in his work. Management and other persons must not affect him. There must be high ethical standard for independent reporting.
2. Secondary objectives:
a. Detection of errors:
The purpose of auditing is to find the errors. The auditor can use ways and means to find out errors in the accounting records. It is the duty of management to avoid error. The independent audit work is helpful for discovery and correction of errors.
b. Detection of frauds:
The purpose of auditing is to find frauds. The management is responsible for finding of frauds. The various types of fraud may be detected by audit. The management can take steps to correct the wrong effects of frauds for the benefit of owners.
c. Prevention of errors:
The purpose of auditing is to forbid errors. The errors can be forbidden through effective internal check. The mistake can occur due to heavy load work or carelessness on the part of employees. There should be no extra burden of work on each employee. The senior person should check the work of a junior person.
d. Prevention of frauds:
The purpose of auditing is to prevent frauds. In accounting it include manipulation or alteration of records and documents, misappropriation of assets, omission of the effects of transaction from records or documents, recording of transaction without substance and misapplication of accounting policies. The effective internal check is a useful is a useful tool to prevent frauds.
3. Special objectives:
a. Management audit:
The purpose of management audit is to assess the performance, review the organizational structure and suggest best course of action. It is a voluntary audit and an auditor can go through management functions to check the policies.
b. Tax audit:
The purpose of auditing is to satisfy the taxation officers. The audit can be conducted to check the income. The sole business and partnership businesses can settle their tax matters trough tax audit.
c. Social audit:
The purpose of social audit is to measure social performance of business. The society is concerned with the protection of natural environment. The social audit can examine the business performance for the society.
d. Propriety audit:
The purpose of propriety audit is to examine the proper use of money. There is a requirement of economic use of resources in the best interest of business. There must be justification of spending every rupee for the benefit of business. The audit can determine the wise use of money.
e. Cost audit:
The purpose of cost audit is to verify the correctness of cost accounts. The management must have followed the cost objectives in maintaining books and other records. The cost audit can help the management to improve the efficiency in doing business.
f. Operations:
The purpose of operations audit is to prevent misuse of resources. It is a part of social audit. The management must use prudence in spending money. There is need of intelligent use of resources for optimum output with lowest possible cost.
g. Bid offer:
The purpose of audit is to determine the real value of business for bid offer. The value of net physical assets becomes the basis of seals. The bidders can offer bid price on the basis of such price. The audited accounts do as a guideline to get at certain decision.
h. Purchase consideration:
The purpose of audit is to determine purchase price of a business. The audited accounts determine value of assets and liabilities. The buyers and sellers come to know real value of business. They can make deal to amalgamate or merge business.
i. Loan:
The purpose of audit may be loan. The management can approach banks and other who lend. The bankers rely on audited accounts for supply of money. The audited accounts are legal requirements of loan facility.
j. Admission:
The purpose of audit may be admission of partner. The audited accounts can provide information to new as well as old partners. They can decide terms and conditions for admission. The value of assets and liabilities is agreed upon.
k. Profit:
The purpose of audit may be checking variations in profits. The fluctuation in profits can be analysed by an expert auditor. The life of business depends on reasonable profits. The management can look into business matters for earning sufficient profit each year.
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