According to Walter B. Meigs auditing standards are authoritative rules for measuring the quality of performance.
Let’s discuss important functions of auditing below in detail. We can also say that these are the responsibilities and functions of the independent auditor.
Different Functions of Auditing
The important functions of auditing are as under: –
Accounting System
The function of auditing is to study the accounting system. It can be stated as a series of tasks in an entity by which transaction are processed a means of maintaining financial records.
See Also: Basic Principles of Auditing
Such a system should recognize, calculate, clarify, post, summarize and report transactions.
The auditor should understand the accounting system in operation in order to determine the nature, timing and extent of other audit procedures.
Internal Control
Internal control is a process, which determines that management policies are carried out and accounting principles are followed. This function helps to safeguard assets, location and prevention of errors and frauds.
Moreover, the management is able to prepare reliable financial! statements in time. When the auditor notes that he can rely on internal control, the audit procedure may be less extensive. The effectiveness of internal control is to be determined by an auditor.
Vouching
An auditor can inspect the documents that support and prove the business transactions. The date, amount, and other details are checked.
All entries in books of accounts are made on the basis of relevant vouchers. This function is essential to determine the accuracy of accounting records.
Arithmetic Accuracy
It is a function of auditing to check the arithmetical accuracy of account books and other papers. The audit clerk verifies the figures. The errors and frauds are discovered.
The management can take steps to rectify the mistakes. The responsibility of fraud can be fixed. This function helps the auditors to show the true and fair view of accounting statements.
Capital and Revenue
It is a function of auditing to make difference between capital and revenue items. The revenue items are compared to determine income.
The capital items are compared to note the financial position of any business. The income and expenses related to many years can be divided into current and coming year.
Verification of Assets
The verification of assets is a function of auditing. Verification is concerned with the determination of value, ownership, possession and any charge on asset of any business.
See Also: What is Continuous Audit
The’ auditor can check the existence of asset. The documents and books can show the purchase price.
If any loan is taken on security of an asset, such information can be collected. It is the duty of an auditor to verify these assets.
Verification of Liabilities
The auditor can verify the liabilities from the books of accounts. The auditor must receive a certificate form management that all liabilities are included in the balance sheet. The write letters to creditors for verification of liabilities.
Valuation of Assets
The auditor can apply accounting conventions and principles to examine and test the value of assets.
The management calculates the value to assets. The auditor must critically check the assigned values. He can get help from technical personnel.
Valuation of Liabilities
The values of liabilities are stated in the balance sheet. The management can assess the value on the basis of dealing made.
See Also: Qualities of an Auditor
The auditor can examine the value of liabilities from the books of accounts and other papers.
The auditor can confirm the value from outside independent experts should determine the value of contingent liabilities.
Legal Requirement
There are various laws like Companies Ordinance 1984, Income Tax Ordinance 2001 and Stock Exchange Rules 1971.
It is the duty of the auditor to check that financial statements are prepared under the legal requirements. The auditor can note this point in his report that management has followed legal formalities
Reporting
It is the duty of an auditor to submit his opinion in writing. The report may be clean or conditional. An auditor is an independent person.
If he is satisfied about true and fair view, he can present clean report. In case of some weakness, he can give qualified report.
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