What are the objectives of auditing? The objective of an audit of monetary statements is to allow the auditor to specific opinion whether the financial statements are prepared, in entire material respects, in accordance with a recognized financial reporting framework. let’s discuss in detail important objectives of auditing.
OBJECTIVES OF AUDITING
The main objectives of auditing are discussed as follow;-
A ) PRIMARY OBJECTIVES
The Primary objectives of auditing are as below;-
1. 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 the fair view of financial statements.
2. PRESCRIBED LAWS: The purpose of the audit is to check that prescribed laws have been followed in the 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.
3. 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.
4. INDEPENDENT OPINION: The purpose of the audit is to express an independent opinion. The auditor must be honest in his work. Management and other persons must not influence him There must be high ethical standard for independent reporting.
B) SECONDARY OBJECTIVES
The Secondary objectives of auditing are as below;-
5. DETECTION OF ERRORS: The purpose of auditing is to detect 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 errors. The independent audit work is helpful for discovery and correction of errors.
6. DETECTION OF FRAUDS: The purpose of auditing is to detect frauds. The management is responsible for the detection of frauds. The various types of fraud may be detected by an audit. The management can take steps to correct the wrong effects of frauds for the benefit of owners.
7. PREVENTION OF ERRORS: The purpose of auditing to errors. The errors can be prevented 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.
8. PREVENTION OF FRAUDS: The purpose of auditing is to Prevent frauds. In accounting, it includes manipulation or alteration of records and misappropriation of assets, an omission of the effects of the transaction from records or documents, recording of the transaction without substance and misapplication of accounting policies. The effective internal check is a useful tool to prevent frauds.
C SPECIAL OBJECTIVES
The Special objectives of auditing are as below;-
9. MANAGEMENT AUDIT: The purpose of management audit is to assess the performing, review the organizational structure and suggest the best course of action. It is a voluntary audit and an audit(h can go through management functions to check the policies.
10. TAX AUDIT: The purpose of auditing is to satisfy the taxation officers. The can be conducted to determine the income. The sole proprietors and partnership firms can settle their tax matters through tax audit
11. SOCIAL AUDIT: The purpose of the social audit is to measure social performance of the business. The society is concerned with the Protection of natural environment The social audit can examine the business performance of the society.
12. 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 a justification for spending every rupee for the benefit of business. The audit can determine the wise use of money.
13. 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.
14, 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.
15. BID OFFER: The purpose of the audit is to determine the real value of the business forbid offer. The value of net tangible assets becomes the basis of Sales. The bidders can offer bid price on the basis of such price. The audited accounts serve as a guideline to arrive at a certain decision.
16. PURCHASE CONSIDERATION: The purpose of the audit is to determine the purchase price of a business. The audited accounts determine value of assets and liabilities. The buyers and sellers Come to know the real value of a business. They can make a deal to amalgamate or merge business.
17. LOAN: The purpose of the audit may be a loan. The management can approach banks and other lenders. The bankers rely on audited accounts for the supply of money. The audited accounts are legal requirements of the loan facility.
18. ADMISSION: The purpose of the audit may be an admission of a 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.
19. PROFITS: The purpose Of audit may be checking variations in profits. The fluctuation in profits can be analyzed by an expert auditor. The file of business depends on reasonable profits.