CLASSIFICATION OF AUDIT PART 1

– CLASSIFICATION OF AUDITS 1

– AUDITING

– CLASSIFICATION

– ON THE BASIS OF SCOPE

1.       GENERAL

2.       SPECIFIC

– ON THE BASIS OF NATURE OF ACTIVITY

1.       COMMERCIAL

2.       NON COMMERCIAL

– ON THE BASIS OF FORM OF ORGANIZATION

1.       PRIVATE

2.       GOVT

– ON THE BASIS  OF WHO CONDUCTS THE AUDIT

1.       INTERNAL AUDIT

2.       EXTERNAL AUDIT

– ON  THE BASIS OF LEGAL NECESSITY

1.       STATUTORY AUDIT

2.       NON STATUTORY AUDIT

– ON THE METHOD OF EXAMINATION

1.       CONTINUOUS AUDIT

2.       ANNUAL AUDIT

– TYPES OF AUDIT

– PRIVATE AUDIT

– CONDUCTED AT THE DESIRE OF OWNERS.

– NOT STATUTORY AUDIT

1.       AUDIT OF SOLE TRADER’S ACCOUNTS

2.       AUDIT OF ACCOUNT OF PARTNERSHIP FIRMS

3.       AUDIT OF ACCOUNT OF INDIVIDUALS

4.       AUDIT OF INSTITUTIONS NOT COVERED BY STATUTORY AUDIT

– AUDIT OF SOLE TRADER’S ACCOUNT

1.       DECISION TAKEN BY OWNER

2.       SCOPE OF THE AUDIT AND APPOINTMENT OF AUDITOR

3.       AGREEMENT IN WRITTEN FORM

– ADVANATAGES:

1.       PROPER ACCOUNTS

2.       AWARENESS OF FRAUD

3.       RELIABLE

4.       BASIS FOR SETTLEMENT OF  ACCOUNT

– AUDIT OF ACCOUNT OF PARTNERSHIP
FIRMS

1. PARTNERSHIP DEED ON MUTUAL AGREEMENT PROVIDE FOR AUDIT OF FINANCIAL STATEMENT.
2. RIGHTS,DUTIES AND LIABILITIES OF THE AUDITOR ARE DEFINED IN THE MUTUAL AGREEMENT.
3. WRITTEN FORM THE NATURE AND SCOPE OF AUDIT WORK

4. IN CASE THE PARTNERSHIP DEED IS SILENT THEN THESE PROVISION OF PARTNERSHIP WILL APPLY

a)       SHARING OF PROFIT AND LOSS EQUALLY

b)       NO SALARY

c)       INTEREST ON CAPITAL WILL BE PAYABLE OUT OF PROFIT ONLY

d)       LOAN INTEREST WILL BE AT 6%

e)       USE THE PROPERTY FOR THE BUSINESS ONLY

f)        ADMISSION OF NEW PARTNER WITH THE CONSENT

g)       ADMISSION OF MINOR ONLY FOR PROFIT

h)       GOOD WILL  BE CONSIDERED AS ASSET AT THE TIME OF SETTLEMENT OF ACCOUNT ON DISSOLUTION

– ON DISSOLUTION THE FOLLOWING ORDER:-

a)       OUT OF PROFITS

b)       OUT OF CAPITAL

c)       BY THE PARTNERS INDIVIDUALLY IN THE PROFIT SHARING RATIO

– ON DISSOLUTION OF THE FIRM,ITS ASSETS INCLUDING ANY SUM CONTRIBUTED BY THE PARTNERS TO MAKE UP DEFICIENCY,SHALL BE APPLIED IN THE FOLLOWING ORDER:-

a)       PAYING DEBT TO OUTSIDERS

b)       PAYING OFF PROPORTIONATELY TO PARTNERS THEIR LOAN

c)       TOWARD THEIR CAPITAL

d)       BALANCE IN PROFIT SHARING RATION

– AUDIT OF ACCOUNT OF INDIVIDUALS: THE INDIVIDUAL HAVE THE FOLLOWING ADVANTAGES:

1.     AUDITED ACCOUNTS ARE TAKEN AS CORRECT BY INCOME TAX AUTHORITIES

2.    ASSURED OF ACCURACY OF ACCOUNTS

3.     MORAL CHECK ON THE ACCOUNTANT AND AGENTS

4.    AWARENESS OF TRUE INCOME FROM ALL SOURCES.

·         AUDIT OF INSTITUTIONS NOT COVERED BY STATUTORY AUDIT: CERTAIN NON PROFIT ORGANIZATION LIKE CLUBS,LIBRARIES,COLLEGES.CHARITABLE INSTITUTIONS GET THEIR ACCOUNT AUDITED.

·          

– GOVERNMENT AUDIT

·         AUDIT OF GOVT OFFICES AND DEPARTMENT CONDUCTED BY AUDIT AND ACCOUNTS DEPARTMENT. WORKS INDEPENDENTLY AND IT IS HEADED BY COMPTROLLER AND AUDITOR GENERAL OF INDIA

·         WORKING ACCORDING TO GOVT RULES AND REGULATIONS.

– OBJECTIVES OF GOVT AUDIT

1.       EVERY PAYMENT AS PER RULES

2.       SANCTIONED BY PROPER AUTHORITY

3.       TO VERIFY THE ALLOWANCES TO EMPLOYEES AS PER RULES

4.       TO CHECK THE EXISTENCE OF STOCK AND STORES AND THEIR PROPER VALUATION

5.       EXPENDITURE FOR THE PUBLIC INTEREST

6.       TO ENSURE STOCK TAKING REGULARLY

·         INTERNAL AUDIT

1.       IS AN AUDIT CONDUCTED ON BEHALF OF THE MGMT OF AN ENTERPRISE WITH THE OBJECTIVE OF ASSISTING THE MGMT TO DISCHARGE ITS RESPONSIBILITY EFFECTIVELY

2.       EXAMINATION AND EVALUATION OF VARIOUS ACTIVITIES OF AN ENTERPRISE.

– REQUIRMENT OF INTERNAL AUDIT SEC 138

a)       SUCH CLASS OR CLASSES OF COMPANIES OR MAY BE PRESCRIBED SHALL BE REQUIRED TO HAVE INTERNAL AUDITOR

b)       THE CENTRAL GOVT MAY BY RULES PRESCRIBE THE MANNER AND INTERVALS IN WHICH THE INTERNAL AUDIT IS TO BE CONDUCTED

c)       INTERNAL AUDITING

·         TWO ASPECTS:-

1.       OPERATIONAL AUDIT:-

2.       AUDIT OF VARIOUS ACTIVITIES

•                    COMPLIANCE WITH PROCEDURES

1. REPORTING ON THE OPERATIONS OF VARIOUS DEPARTMENT
2. MGMT OF AUDIT:- AUDIT OF AUTHORITY.PROPRIETY
3. AS PER THE COMPANIES ( AUDITORS REPORT) ORDER 2003,
4.  THE  STATUTORY AUDITOR IS REQUIRED TO REPORT WHETHER THE INTERNAL AUDITING SYSTEM OF THE COMPANY IS ADEQUATE WITH SIZE AND NATURE OF THE BUSINESS OF THE COMPANY.

– STATUTORY OR COMPULSORY AUDIT

1.       COMPULSORY AUDIT DONE BY QUALIFIED CHARTERED ACCOUNTANT WHO ARE NOT CONNECTED WITH THE PREPARATION OF ACCOUNTS.

2.       CONDUCTED TO KNOW  WHETHER BALANCE SHEET AND PROFIT AND LOSS ACCOUNT PRESENT A TRUE AND FAIR VIEW OF THE FINANCIAL POSITION AND WORKING RESULT

·         AUDIT OF COMPANIES

1.       BANKING COMPANIES GOVERNED BY THE BANKING REGULATIONS ACT 1949

2.       CO OPERATIVE SOCIETIES REGISTERED UNDER THE CO OPERATIVE SOCIETIES ACT

3.       PUBLIC AND CHARITABLE TRUSTS REGISTERED UNDER INDIAN TRUST ACT

4.       ELECTRIC SUPPLY COMPANIES GOVERNED BY ELECTRICITY SUPPLY ACT 1948

– SCOPE OF SUCH AN AUDIT CAN NOT BE RESTRICTED

1.       CONDUCTED BY PROFESSIONAL

2.       THE RIGHTS,DUTIES AND LIABILITIES OF THE AUDITORS ARE GOVERNED BY THE LAW.

5.     STATUTORY AUDIT

1.       AUDIT OF COMPANIES: UNDER COMPANIES ACT,AUDIT OF ACCOUNTS OF COMPANIES IS COMPULSORY. IS DONE BY INDEPENDENT AUDITOR WHO IS QUALIFIED CA  CAN BE APPOINTED AS AUDITOR. THE  COMPANIES ACT 2013 REGARDING APPOINTMENT,DUTIES,QUALIFICATIONS,POWERS AND LIABILITIES

2.       AUDIT OF ACCOUNTS OF TRUSTS:-

3.       AUDIT OF ACCOUNT OF COOPERATIVE SOCIETIES:-CO –OPERATIVES SOCIETIES ARE ESTABLISHED UNDER THE COOPERATIVES SOCIETIES ACT,1912. IT CONTAINS VARIOUS PROVISIONS FOR REGULATIONS AND WORKING OF THESE SOCIETIES, THE AUDITOR SHOULD HAVE EXPERT KNOWLEDGE AND COMPANIES ACT ARE NOT APPLICABLE TO COOPERATIVE SOCIETIES. THE REGISTRAR OF COOPERATIVE SOCIETIES SHALL AUDIT OR CAUSE TO BE AUDITED BY SOME PERSON AUTHORISED BY HIM

4.       STATUTORY AUDIT

5.       AUDIT OF ACCOUNT OF OTHER INSTITUTION: OTHER CORPORATE BODIES LIKE BANKS,INSURANCE,COMPANIES,ELECTRICITY COMPANIES ETC FORMED UNDER THE SPECIAL ACTS OF THE PARLIAMENT SHALL GET THE ACCOUNT AUDITED AS PER THE PROVISIONS OF THE RESPECTIVE ACT.

·         FEATURES OF STATUTORY AUDIT

1.       COMPULSORY AUDIT

2.       MUST BE COMPLETE AUDIT

3.       PROVIDE FOR THE NORMS REGARDING APPOINTMENT OD AUDITOR

4.       MUST BE QUALIFIED ACCOUNTANT

5.       MUST NOT BE DISQUALIFIED AS PER THE PROVISIONS OF THE LAW

6.       INDEPENDENT AUDITOR

7.       RIGHTS,DUTIES AND LIABILITIES OF THE STATUTORY AUDITORS ARE LAID IN THE STATUTE THEY CAN NOT BE ALTERED

8.       THE STATUTORY AUDITOR SERVE THE PURPOSE.

·         ADVANTAGE

1.       TRUE AND FAIR VIEW OF THE FINANCIAL POSITION OF THE BUSINESS TO SHAREHOLDERS AND OTHER PERSONS

2.       PROTECTION OF SHAREHOLDERS FROM THE FRAUD COMMITTED BY DIRECTORS,PROMOTERS OR MANAGERS

3.       VERIFICATION OF FOLLOWING THE PROVISIONS OF THE COMPANIES ACT

4.       MORAL CHECK ON THE DUTIES OF MANAGEMENT

– CONTINUOUS AUDIT

1.       CONDUCTED THROUGHOUT THE YEAR OR AT THE REGULAR SHORT INTERVALS OF TIME

2.       AUDITOR VISITS HIS CLIENT REGULARLY AND EACH AND EVERY TRANSACTION IS CHECKED

•                       SUITABLE :

1.       WHERE PERIODICAL STATEMENTS ARE REQUIRED AFTER SHORT INTERVAL

2.       INTERNAL CHECK IS NOT EFFECTIVE

3.       BUSINESS AT LARGE SCALE AND NUMBER OF TRANSACTIONS TO BE CHECKED

4.       REQUIREMENTS OF AUDITED STATEMENTS IMMEDIATELY AFTER THE CLOSE OF THE FINANCIAL YEAR

5.       IN BANKS OR OTHER ORGANIZATION WHERE FINAL ACCOUNTS ARE PREPARED IMMEDIATELY AFTER THE LAST DAY OF THE FINANCIAL YEAR

– DEFINITION OF  CONTINUOUS AUDIT

•                       SPICER AND PEGLER,” A CONTINUOUS AUDIT IS ONE WHERE AUDITOR’S STAFF IS OCCUPIED CONTINUOUSLY ON THE ACCOUNTS THE WHOLE YEAR ROUND,OR WHERE THE AUDITOR ATTENDS THE INTERVAL FIXED OR OTHERWISE ,DURING THE CURRENCY OF THE FINANCIAL YEAR AND PERFORMS AN INTERIM AUDIT, SUCH AUDIT ARE ADOPTED WHERE WORK INVOLVED IS CONSIDERABLE AND HAVE MANY POINTS IN THEIR FAVOUR,ALTHOUGH THEY ARE SUBJECT TO CERTAIN DISADVANTAGES.

•                       R. C WILLIAMS,” A CONTINUOUS DETAILED AUDIT IS ONE WHERE THE AUDITOR OR HIS STAFF IS CONSTANTLY ENGAGED IN CHECKING ACCOSTS DURING THE WHOLE PERIOD OR WHERE THE AUDITOR OR HIS STAFF ATTENDS AT REGULAR OR IRREGULAR INTERVAL DURING THE PERIOD.

– ADVANTAGES OF CONTINUOUS AUDIT

1.       COMPLETE CHECKING OF ALL THE RECORD

2.       PROPER PLANNING OF AUDIT WORK IN SYSTEMATIC MANNER

3.       PREPARATION OF INTERIM REPORTS

4.       EARLY DETECTION OF FRAUD AND ERRORS

5.       UP TO DATE ACCOUNTS

6.       VALUABLE SUGGESTIONS

7.       MORAL CHECK

DISADVANTAGES

1.       EXPENSIVE

2.       DISLOCATION OF ROUTINE WORK

3.       ALTERATION OF FIGURES

4.       MONOTONY

·         ANNUAL OR PERIODICAL AUDIT

·         MEANS WHEN THE AUDIT WORK IS CONDUCTED AFTER THE CLOSE OF FINANCIAL YEAR. THE AUDITOR VISITS THE CLIENT AND COMPLETE AUDIT IN ONE SITTING.AFTER THE ACCOUNTS ARE FINALIZED THE AUDITOR IS INVITED TO AUDIT THE ACCOUNTS.

·         J.R BATLIBOI, A PERIODICAL AUDIT OR BALANCE SHEET AUDIT IS ONE WHERE THE AUDITOR ATTENDS ONLY AT THE END OF THE FINANCIAL PERIOD AND CERTIFIES THE FINAL STATEMENT OF ACCOUNTS AFTER SCRUTINIZING THE SAME WITH THE BOOKS OF ACCOUNT,VOUCHERS AND DOCUMENTS.

·         FEATURES

1.       AUDIT WORK STARTS AFTER THE CLOSE OF THE FINANCIAL YEAR

2.       AUDIT WORK IS DONE AND COMPLETED IN A CONTINUOUS SESSION

3.       VISIT THE CLIENT ONLY ONCE IN  YEAR AND KEEPS ON GOING TILL THE WORK IS COMPLETED

4.       SATISFACTORY RESULT IN CASE OF SMALL CONCERN

– EVALUATION

·         ADVANTAGES

1.       NO DISTURBANCE IN OFFICE WORK

2.       MINIMIZATION OF ALTERATION

3.       COMPLETE GRIP OVER THE AUDIT

4.       CAN BE FINISHED QUICKLY

5.       WORK ALLOCATION ACCORDING TO TIME SCHEDULE

·         DISADVANTAGES

1.       MAY NOT AVAILABLE IMMEDIATELY

2.       MAY NOT BE ABLE TO CHECK AND VERIFY ALL THE TRANSACTIONS

3.       NOT SUITABLE FOR BIG CONCERN

4.       DELAY IN AUDITOR’S REPORT

5.       MORE DEPENDENCE ON THE OPERATION OF MANAGEMENT