What is the Meaning of Audit and how to conduct an audit of a firm? You are on the right spot to know the answer of this question.
The first fieldwork standard of audit requires that there should be adequate planning. The auditor can draw up his plans to conduct audit according to nature and type of audit work.
The process of audit planning includes making arrangements for collection of financial information to be reviewed and procedures to be followed in examining data.
Audit planning is essential due to the availability of Statistical techniques in the field of audit work and reliance on internal control.
See Also: Purpose of Audit Program
There should be written a plan with exact details relating to the particular audit. There should be elasticity in audit planning so that revision may be made when required. Let’s discuss meaning of audit are as under:
What is the Meaning of Audit
The word audit is taken from Latin word gaudier” which means to hear. In the olden days, the business people living in Egypt, Greece, and Rome used to appoint auditors to hear accounts matters relating to their business. The auditors used to rely on words of mouth.
How to Conduct an Audit of a Firm
Appointment of Auditor
An auditor can examine his appointment. The shareholders have right to appoint an auditor. A copy of resolution shows the decision of management for the appointment.
Previous Auditor
The auditor can write a letter to the old auditor for obtaining his consent. He must have no objection to such appointment. It is the moral duty of the new auditor to inform old auditor for an appointment.
Audit Staff
The auditor can arrange audit staff on the basis of workload. The number of audit clerks can be engaged on the basis of audit work. There should be no extra burden of work on audit staff.
Time of Audit
The auditor can consult the management for fixing a time of an audit. The date of start is fixed with the consent of management. The time allocated must be utilized for proper audit work.
Time Required
The auditor can decide the time required for completion of audit work. He can engage sufficient audit clerks to complete work in time otherwise the cost of audit increases.
Audit Duties
The auditor can note his audit duties. Such duties are usually stated in audit engagement letter. The duties stated in Companies Ordinance 1984 cannot be overlooked.
Nature Of Business
The auditor can check the nature of the business. The nature may relate to manufacturing, trading or service. The auditor must know the nature of activities in order to conduct an audit.
Business History
The auditor should record the history of business. He can record year of establishment, nature and number of products available in the market.
Types of Products
The business may produce different products for successful working. One product or service is not sufficient to compete in the market. The auditor should note the types of products.
List Of Officers
The auditor can ask for a list of officers, their duties, and specimen’s signatures. He must know authority and responsibility of officers. It is essential for completion of audit work.
Copies Of Documents
The auditor can collect copies of documents like a memorandum of association and articles of association. He can examine all such documents for the purpose of the audit.
Books Of Accounts
The auditor can obtain a list of books of accounts. He can check that legal requirements are followed in preparing books of accounts and other records.
Agreements Made
The auditor can examine contracts made between the company and other parties. Company management must follow the terms and conditions.
Accounting System
The auditor can examine accounting system adopted by management. The system must be reasonable to produce reliable accounting information and record.
Internal Control
The internal control system is tested to rely on it. Audit sampling is possible if it is effective. The business work must flow under proper accounting and administrative controls.
Certificates Of Client
The auditor can obtain certificates from a client. The confirmation of accounts from debtors and creditors is possible. The client can issue stock valuation certificate for the auditor.
Old Report
The auditor should examine old auditing report. He can note the weakness stated in the previous report. He can check that weak points stated in the old report are not repeated during this year.
Analytical Review
The auditor can check the ratios and percentage for a number of years. He can examine the trend of various items in order to note the unusual items.
Review Statements
The auditor can review financial statements to see that these statements are based on facts and figures stated in books of accounts and other relevant records.
Legal Formalities
The auditor must see that management has completed legal formalities: There are various laws for working of the company. There should be no change in accounting policies.
Discussion With Management
The auditor can discuss important matters with management. The weak points can be explained and management representation may be received.
Prepare Report
The auditor can prepare a report for work done by him. When he is fully satisfied there is a clean report. In case of bad working, he can submit a qualified report to the shareholders.
Business Studies Notes is a one place stop for all the business students who are looking for business studies class 11 notes, business studies class 12 chapter 2 notes, graduation and master.
