OBJECT OF AN AUDIT

“The Auditing and Assurance Standard: Objectives and scope of Audit of Financial Statement-AAS 2” of the Institute of Chartered Accountants of India specifies that the objective of an audit is to express an opinion of financial statement. To give the opinion about the financial statements, the auditor examines the financial statement to satisfy himself about the truth and fairness of financial position and operating results of the enterprise.

The objectives of audit can be categorized into:

 

I.      Main objectives:

The main objective of audit is to express opinion on financial statement. Suppose an entity prepares balance sheet to portray its financial position as well as prepares P& L account to disclose the operating results of the period covered in the statement. These financial statements are submitted to the auditor for his checking and comment. The auditor checks them in a careful manner with utmost diligence and professional competence.

 

II.      Secondary objectives:

The secondary objectives are as follows:

1.      Detection and prevention of errors:

Errors are generally innocent but sometimes errors which might appear, at first sight, as innocent are ultimately found to be due to fraudulent manipulation and therefore an auditor must pay particular attention to every error, however, innocent it may appear to be at first sight. The following are the various types of errors:

i.  Clerical Errors: These errors are committed in posting, totaling and balancing. Such errors may again be subdividedinto: 

(a)  Errors of Omission: 

The error of omission is one where a transaction has not been recorded in the books of account either wholly or partially. It will not be easy to detect these types of error and it will not affect the trial balance. 

(b)  Errors of Commission: 

When a transaction has been recorded but has been wrongly entered in the books of original entry or posted in eh ledger, error of commission is said to have been made. 

Example: A purchase invoice for $ 1250 was entered in the purchase book as $ 1520. Other errors of commission are wrong castings calculations, postings, extentions etc. 

ii.Errors of Principle:  

Such errors arise when the entrys are not recorded accordin to fundamental principles of accountancy, e.g., wrong allocation of expenditure between capital and revenue. Such errors may be committed either intentionally, or unintentionally. If they are committed intentionally, the object is to falsify and manipulate the accounts either to show more profits or les profits than they actually are.

iii. Compensating Errors or Off-setting Errors: 

A Compensating error or Off-setting error is one which is counter-balanced by any other error or errors, e.g., If A’s account was to be debited for $ 100 but was debited for $10 while B’s account which was to be debited for a total sum of $ 10 was debited for $100. Thus both the account have been debited for a total sum of $ 110 which amount ought to have been debited or a sale of $ 10 to A is posted to the debit of B as $ 5, abd the purchases book is over-cast by $ 5. Again,  an over-casting of an account may be counter-balanced by the under-casting of another account to the same extent. Thes errors are most dangerous and are difficult to guard against. This type of error will not be detected by the trial balance. Such an error will not affect the trial balance and will not be detected by the trial balance. Such an error will not affect the trial balance and will not be detected easily. This error may or may not effect the profit and loss account. 

iv.Errors of Duplication: 

Such errors arise when an entry in a book of original entry has been made twice and has also been posted twice.

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