Define Auditing. What are the Elements of an Audit.
An audit may be said to be such an, examination of the books of accounts and vouchers of a business as will enable the auditor to satisfy 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 and whether Profit & Loss account gives a true and fair view of the profit or loss for the financial period according to the best of his information and explanations given to him and as shown by the books and, if not, in what respect he is not satisfied.
Montgomery has defined auditing as, “A systematic examination of the books and records of a business or other organizations in order to ascertain or verify and to report upon the facts regarding the financial operations and the results thereof”.
Elements of Audit:
Ills a systematic and independent examination by qualified persons. The auditor should arrange the audit procedure to be adopted by him during such examination in a logical sequence. He should complete the audit work in an unbiased manner.
The scope of audit extends to all types of entities, commercial as well as non-commercial.
The opinion or judgement of the auditor on the assertions made by the management in financial statements is communicated through audit report to the client or the shareholders.
The stated purpose of such an audit is to express an opinion as to the truthfulness and fairness of the financial statements.
The auditor collects and evaluates the evidence to examine propositions before him. Besides books of accounts and vouchers, evidence may take different forms including oral testimony of the client, written communication with outsiders and observation and physical inspection by the auditor.
The auditor should have clear idea of the propositions to be examined to achieve the audit objectives.