Techniques of project formulation.

Audit is an independent examination of financial statements of an entity that enable an auditor to express openly and whether the financial statements are prepared (in all material respects) in accordance with an identified an acceptable financial reporting framework (exam for international or local accounting standards and national legislation).

Advantage of audit

1.       detection and prevention of error and fraud.

2.       Protection of the rights and interests of shareholders.

3.       To obtain loan.

4.       To keep the account regularly

5.       satisfaction of owner: because of audit the owner will be satisfied about the business operations and working of its various departments.

6.       Verification of books.

7.       Helpful in obtaining the independent of opinion of the auditor about business condition.

8.       Reliance by outsiders like creditors, debenture holder and bank etc

9.       Reliance by partner.

10.   Reliance by shareholders.

11.   To present as of proof.

12.   Two Assess taxes

what is fraud? Write three examples/types

fraud may be defined as the use of the deception with the view to fulfil individual interest, manipulate the transaction or account. This is done deliberately, which means that there is an intent to deceive to mislead or to conceal the truth or the material facts . Frauds are more than on intentional errors because of the implications of offer dishonesty which accompanies them. They are more difficult to detect they an innocent error. Thus detection and prevention of fraud is off great, important, and constitute an important duty of and a auditor. Fraud maybe of three types

A. Misappropriation of cash.

1.       Misappropriating cash by entering dummy of workers in distributing wage.

2.       Cancelling the purchase returns.

3.       Misappropriation by inflating bill received from supplier.

4.       Misappropriation by not showing received the cash.

B. Misappropriation of goods

1.       Pilferage

2.       misappropriation by not checking goods.

3.       Not providing security by the proper authority.

C. Manipulation/fraudulent of account

1.       showing loss to  avoid taxes ended to deceive shareholders.

2.       Falsification of account to deceive creditors, bankers, so as to obtain further loan.

3.       Showing high profit to inflate the rate of dividend.

4.       Increasing sales by showing fictitious entries to earn profit.

Method of detecting errors.

·         Checking cashbooks and reports

·         Checking receipt, invoice, Bill, evidence, salarysheet and wagesheet

·         find out the difference of dr and cr in trial balance.

·         Compare  amount written in trial balance, and other books

·         check the amount of last year cld and this year bld

·         examine all the primary books.

Difference between audit and accounting.

Audit.

Meaning: audit is to check the record kept by account, to provide evidence, that p&L account and the balance sheet are true

beginning of work: book of audit begins when an account is end

scope: auditors see whether the company has followed fact or law or not

appointment: auditor is a point for a short period

preparation of report: auditor prepare or report and present to the concerned authorities after completion of the job

Account:

account is to collect information of an financial year, to keep a record, properly analyse and give all necessary  information

Work of account begin when the business transaction begin

Account prepare different account, joural, ledger, manufacturing, trading, profit and loss account and its balance sheet.

Accountant is a permanent staff

Accountant does not prepare any report of the completion of job

Objectives of audit

for better understanding. We could classify the objectives of audit as:

1 . Primary objectives. Cancelling

2. Secondary objectives

3. Specific objectives

Primary objectives: to deter mined and drugs. The reliability of the financial statement and the supporting accounting records of particular financial period is the main purpose of the audit. Auditor discloses his opinion that whether the audited book of account profit and loss account and balance sheet are showing the true and fair view is of the state of affair of the company's business.to get a true and fair view of the company affair and express his opinion, He has, to thoroughly check the transaction and relevant documents of the company made during the audited period, which will help the auditor to report the financial condition and working result of the organisation.

Secondary objectives: in order to report the financial condition of the business, auditor has to examine the books of accounts in the relieving documents. In that process he may come across some errors and fraud. We make classified this error and fraud is below

1 detection and prevention of errors.

2 detection and prevention of frauds.

Detection and prevention of errors:

to detect the errors and mistakes and to rectify this are the secondary objectives. Under this, the error of omission, and are of commission, compensating error,error of duplication, trial balance in error, error of principle, are found and rectified .finding and rectifying such errors are former on the other secondary objectives

Detection and prevention of frauds: fraud is intentional and is knowingly committed to defraud the appropriator of the concern. This is done deliberately. It is mentioned that there is an intent to deceive to mislead or to conceal the truth or the material facts. Fraud maybe of three types

1. Misappropriation of cash

2. Misappropriation of goods.

3. Manipulation or fraudulent of account.

Detection and prevention of fraud is of great importance and constitute an important duty of an auditor.

Specific objectives: testing and finding the validity of errors, frauds and rectifying those in the area of the cost expenses and management, tax and depreciation etc are the specifics  objectives.

Detection and prevention of error

·         errors are generally committed innocently but an auditor should be very careful about it because sometimes error which might appear as innocent are the result of fraudulent manipulation. For example, a debtor sends rs 500 by bank draft and the accountant forget to make an entry in the books. It is an error. On the other hand, if the accountant intentionally keeps the money with him and does not make an entry in the book is to become fraud.

Errors are of various types, some of which are listed below

1.       Clerical errors: a clerical error is one which arises on account of wrong posting clerical error are of three types

A. Errors of omission: errors which arise on account of transaction not being recorded in the books of accounts either wholly or partially are called errors of omission .in case where a transaction has been totally omitted. It will not effect the trial balance, and hence it is more difficult to detect. For example, omission to enter purchases in purchase book. It means both the debit and credit aspects of the transactions are equally omitted and the arithmetically accuracy of the trial balance is not affected. On the other hand, partial omission can be easily discovered as the trial balance will not agree. For instance, if entry for purchase is made in the purchase books, but is omitted from the accounts of the concerned customer. Similarly, the rent account must show 12 entries for the rent, paid in a year whereas , if only nine entries are Sony, it means that rent for three months has not been paid. In these cases, the trial balance will disagree and the auditor can find out these errors by conducting a thorough checking of the records.

B. Errors of comission: when incorrect entries are made in the books of accounts (books of original entry or, ledger accounts) either wholly or partially the errors are known in errors of commission. Examples of such errors are wrong entries in the book of original entry, wrong calculations, postings, additions, castings and carry forward. For instance, the amount in the books of original entry is wrongly recorded. The amount of rs 232 might be entered as rs 322 in the books of original entry. Such errors can be located while vouching the purchases with the original invoices and rectified. Some of such errors will be detected by the non-agreement of the trial balance while some errors of omission do not effect the trial balance.

C compensating errors: when there are two or more errors which exactly counterbalance each other, they are referred as compensating errors

they are also non as off setting errors because the effects are offset. Such errors are difficult to detect as the trial balance will still agree. For example x account was credited by RS 20 instead of rs 80. There was a short credit of rs

 60 , while z account is debited by rs 20 instead of rs 80. Thus , there is a short debit of rs 60. It means that there is only a short credit and a short debit of rs 60 each. Both the sites of the trial balance are equally affected.at the same times it may or may not effect the poor fit and loss account

Errors of principles: errors of principles may arise quite unintentionally due to lack of correct knowledge of the principles governing the preparation of the accounts of business. Examples of such errors are incorrect location of expenditure between capital and revenue, ignoring out extending assets and liabilities, wrong valuation of assets and provision for liabilities, and bad debts etc. this is the most important class of error because error of this kind. It does not affect the agreement of the trial balance, but the profit and loss account may be very much affected. For example, if revenue expenditure is shown its capital expenditure are well closing stock is overvalued, the profit is inflated, . The profit is shown more than what actually it is should be. Such errors will never be discovered by mere routine checking, therefore, and auditors should exercise the utmost carer in discovering such error. He should make an intelligent enquiry and investigation of every transaction. Sometimes such errors are committed intentionally to manipulate the accounts in order to show more poor fit or less profits than they actually are for the year. For instance, if more depreciation is provided. The perfidy is reduced. This may affect the profit and loss account and the balance sheet. Therefore, an independent checking and detailed enquiry shall be made by an auditor to locate such errors, otherwise he will not be able to give the correct financier position of the organisation for the year for instance, if more depreciation is provided. The profit is reduced.