Features of auditing

An overview of Features of Auditing

Meaning and Features of Auditing:

With time, audits have become an indispensable part of the functioning of any organization.

The term “audit” means thorough scrutiny of the books of account. The purpose is to verify the correctness of accounts as well as judge the authenticity of the financial position disclosed by the Balance Sheet and Profit and Loss Account of a company.

In other words, an audit helps in checking the truthfulness of financial statements.

The individual conducting the audit should take care to ensure that the financial statements of his client do not mislead anyone.

He has to satisfy himself with the validity and authenticity of the financial statements and has to report whether or not they reflect a true and fair view of the state of affairs of the business. For this purpose, he should independently and honestly carry out the audit work.

In this blog post, we have discussed the salient features of auditing to understand all that it entails.

Features of an Audit

The main features of auditing are as follows:

1. Systematic examination

An audit is characterized as a systematic and scientific examination of the books of account of an organization.

2. Check arithmetical accuracy

An audit checks the arithmetical accuracy of the books of account by the verification of postings, castings, balances, etc.

3. Check completeness

An auditor has to check that none of the entries in the books of account of the client have been omitted in the process of compilation and that nothing which is not in the books of account has found a place in the year-end statements.

4. Done by an independent person or firm

An audit is carried out by an independent person (or a firm) who is duly qualified for the job. The auditor should be competent, independent, qualified, and should be possessing the prescribed qualification & certificate of practice.

The auditor is required to perform his work without coming under the influence of the client’s management or any third party. If he does not do so, he can add little to the confidence of shareholders and other stakeholders who rely on his audit report.

5. Verification of financial results

As stated earlier, the purpose of an audit is to verify the results represented by the profit and loss account and the state of affairs as shown by the balance sheet. The statements should present a true and fair picture of the operational results of the client’s business and of the assets and liabilities.

The information conveyed by the financial statements must be true, clear and unambiguous. Also, an auditor should ensure that amounts shown in the financial statements are properly classified, described and disclosed in conformity with accounting standards.

The accounts should have been prepared in conformity with the concerned law.

6. Review of accounting systems and internal control

The process of audit involves a critical review of the system of accounting and internal controls operating in the entity.

An examination of the system of accounting and internal controls is done to see whether it is appropriate for the business and helps in properly recording all transactions.

If the systems operating in the entity are adequate, it kind of assures the auditor to a large extent that errors and fraud are minimized.

7. Based on information supplied by management

An audit is performed with the help of vouchers, supporting documents, information and explanations received from the management and client’s staff.

Even though the majority of information is supplied by the management, the auditor also sometimes obtains evidence from external sources such as creditors, financial institutions, etc. dealing with the client’s business.

8. Scrutiny of documents to verify the validity of transactions

In order to establish the correctness of the books of account, the auditor must inspect, compare, check, review, and scrutinize the vouchers supporting the transactions, as well as examine correspondence, minute books of shareholders and directors, Memorandum of Association and Articles of Association (MOA and AOA), and so on.

He has to see that the accounts have been drawn up with reference to entries in the books of account. And these entries in the books of account must be adequately supported by sufficient and appropriate evidence.

9. Classification of capital and revenue

While conducting an audit, the auditor has to ascertain that an appropriate distinction between capital and revenue items has been made and that the amounts of various income and expenditure items have been adjusted in the accounts corresponding to the relevant accounting period.

10. Verification of assets and liabilities

An audit also involves the verification of the title, existence and value of the assets appearing on the balance sheet. Further, liabilities stated in the balance sheet are verified too.

11. Reporting to the appropriate person/body

The outcome of the audit exercise is produced in the form of an audit report. All audit findings and the opinion of the auditor regarding the fairness of financial statements have to be reported to the appropriate person/body. In the case of financial audits, the report is submitted to the shareholders or BOD of the company.

If the auditor is not satisfied with the genuineness of transactions or has a reservation about a particular matter, he should clearly mention that in his report.

12. Relationship between three parties

An audit represents a relationship between the auditor, the client’s management, and the shareholders of the company.

Takeaway (Features of Auditing)

From the above points, it is clear that auditing is a systematic and scientific examination of the accounting records of a business. It enables the auditor to know whether books of account are prepared properly and whether financial statements accurately reflect the entries made in the books.

For giving a report on the financial health of the business, the auditor goes through various accounts and related evidence (external and internal) to satisfy himself about their accuracy and authenticity.


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