Main Objective of Auditing

Main objective of auditing is  to give an independent opinion or to express a unique opinion about the financial statements of the audited entry.  In other word main objective of auditing is to express a different thoughts on  financial statements which audited as  entry . As we know Auditing simply means to inspect or examine the books of account. This opinion means to examine whether the financial statements showing a true or fair view or not.

We can divide the main objective of auditing in two different parts to understand much better about its work.

Main Objective of Auditing

Main Objective of auditing can be divide in two parts:-

  1. Primary objective
  2. Secondary or subsidiary objective

Although we can say that secondary or subsidiary objectives have dependent on primary objective. Without primary objective subsidiary objective can’t be examine or verify anything.

Now let’s know more about these two objective, means primary and secondary or subsidiary objectives.

Primary objectives have following tasks:-

  • To examine the system of internal check.
  • To authenticity and validity of financial transactions.
  • To check capital and revenue nature of financial transactions.
  • To statutory requirement.
  • To check true and fairness of operating results.

Secondary or subsidiary objectives have following tasks:-

  • To detect and prevent from errors.
  • To detect and prevent it from frauds
  • To check errors of principles and compulsion errors.

Note:- From these objectives we can say or conclude the following things.

  • Auditor is like a watching dog.
  • Auditor is not a blood hound.

Now let’s discuss the Detection of errors in brief

Detection of errors have following types:-

  • Error of omissions.

Error of omission has also divided in to two parts:-

  1. Partial error
  2. Complete error.

Partial error:-

  • In partial error auditor has done partial mistakes means forget to entry some of parts then that will be considered as partial error.
  • I’m case of partial error detection of errors have easy to find out. It means we can easily detect the errors.

Complete error:-

  • In complete error auditor forgot to entry the whole data then that considered as complete error.
  • In case of complete error it’s become very difficult to detect or identify the errors. Because whole data has missing.

Let’s take on example to understand error of omission. So a businessman sold his old computer to supplier in ₹ 10000 but he omits to post it in supplier account. Then in this case we say it error of omission.

  • Error in commission:-

When any entry or financial transactions calculated incorrectly then we call it error in commission.

Ex- Let we purchased any goods in ₹ 20 and we post it ₹ 80 in purchase book. Then this type of error call as error in commission.

  • In this case also detection of errors have become very difficult because we have  entered wrong data in book of account.
  • Compensating errors:-

In compensating error entered data in books of account compensate each other. It means some of the debit entry compensate in to credit entry and credit entry in to debit entry.

Let’s take one example to understand compensating error. So a person buys any goods in ₹ 80 he entered in credit. And sales that goods in ₹ 60 which he entered in debit. And when these entries compensate between each other then in this case we say it a compensating error.

So if compensating error define in simple word then it just interchanging of data from one entry with another one. Which makes the whole entry very complicated.

  • Error of duplication:-

When same entry entered two or more times then this type of error is called error of duplication.

Let’s take one example to understand the error of duplication. Suppose a person buys any goods of amount₹ 200 and he entered it two times in purchase book. Then in this case that error will call as error of duplication. It means same entry more than two or more times.

  • Error of principle:-

When we apply wrong principle of accounting then in that case it has error of principle. Means when we entered the capital item in to revenue item and revenue item in  capital item.

Let’s take one example to understand error of principle. Suppose a person buys any goods in ₹ 1200 and sells it in ₹ 1600. So capital is ₹ 1200 and revenue is ₹ 1600 in which he got profit of ₹ 400. But he post ₹ 1600 in capital and ₹ 1200 in revenue then it that case it has considered to be error of principle.

  • In these case as we above discussed detection has become very difficult.

Now let’s discuss about detection of frauds in detail.

As we know frauds occur intentionally, it doesn’t like error which occurs unintentionally. Frauds has mainly occur by a person to harm another person.

Detection of frauds are classified in to following types:-

  1. Misappropriation of cash
  2. Misappropriation of goods
  3. Manipulation of accounts
  1. Misappropriation of cash:-

  • Sometimes a person who is maintaining accounts or who is doing bookkeeping doesn’t show credit sale.
  • sometimes a person who is maintaining accounts or who is doing bookkeeping doesn’t show cash sale.
  • sometimes he shows cash sale in credit sale.

In this case cash has becoming less. And in this fraud it has became difficult for owner to find out the frauds in his enterprises.

  1. Misappropriation of goods:-

  • Sometimes a person who is maintaining accounts or who is doing bookkeeping call fictitious sale or purchase sale to fraud in goods.
  • Sometimes they show overstock to understock and understock to overstock.

They do these things to fraud in goods purchase or sale.

  1. Manipulation of accounts:-

  • Sometimes a person who is maintaining accounts or who is doing bookkeeping show a sale which has not purchased in such a way that it has purchased.
  • Sometimes they will show increase or decrease in cash to fraud.

These are some of ideas about frauds occur in different ways. Now we will discuss about prevention of fraud and error in detail.

As above mentioned that auditor does not take any steps to prevent the fraud or error. He will tell the management or owner of company.

  • Auditor is a watch dog but not a blood hound.
  • Lf Auditor has come to know that he is dealing with a fraudulent or dishonest person then in this case he can say to his management but he can’t take any actions.
Auditor has duty to:-
  • Confined to careful and intelligent enquiry.
  • He is not wound to be a detective.
  • He should be faithful and honest towards his concern.
  • If any doubt arises in his mind regarding any fraud then he can make a detailed investigation. To make his doubt or suspicion clear.

Also, Read

Basic principles governing an audit

Standard Auditing Practice (SAP) which has issued by the council of institute of chartered accountant India. This institute describe the basic principles which will govern by an auditor professional responsibility whenever he will carry any audit.

  1. He should be independent. There has to be no concern with company except an auditor.
  2. He should keep entry information of client confidential.
  3. He should be sincere and faithful towards his work as an auditor.
  4. He should have every skill and competence. As we know an auditor can be only a qualified chartered accountant (CA).
  5. He should maintain proper record or proper documents.
  6. The documents of his client will be his audit evidence.
  7. He will have to maintain accounting system and internal control.
  8. Main work of an auditor is to make the conclusion of whole document and report to his management.

These are some of the skills and duty which every auditor should have to do it. These skills and their faithfulness towards his work make an auditor responsible.

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