The document provides an introduction to auditing, discussing the origin of auditing in the 15th century, the evolving concepts of auditing such as its role in ensuring accountability and compliance, and definitions of auditing from various sources. It also covers the objectives of auditing in verifying financial statements and detecting errors and fraud, the differences between bookkeeping, accounting and auditing, and the various types and classifications of audits.

1. ACC 300 – AUDITING
SPRING 2018 BBA
Slide prepared by – Abdullah Al Yousuf Khan
Assistant Professor: IUBAT

2. Chapter 1
Introduction

3. Origin
 Medieval (15th century) age/time.
 Luca Pacialo (1494)

4. Origin
 Industrial revolution – 18th century

5. Evolving Concepts
A. Post industrial renaissance help evolve;
A. Financing business
B. MBO
C. Auxiliary/facilitator service
D. Compliance to
 Create monitory authority to ensure;
 A review and correction mechanism
 An effective system
 Ensure managers accountable
 Penalty imposed if failed to do task as
expected.

6. Definition
Audit /ˈɔːdɪt/ ;Latin “audire” meaning “to listen”.

7. Some Scholarly Definitions
 Spicer and Pegler
 FRM de Paula
 JR Batliboi
 The Institute of Chartered Accounting of
India
 Montgomery

8. Summary of Definitions
 Auditing is an opinion on the quality of
financial statements (the Balance Sheet and
Income Statement).
 The opinion on financial information is
expressed after careful examination of books
of account, documents, records, and vouchers.
 i.e., evidence is gathered and tested to form
the bar framing an opinion.

9. Difference Between Book-keeping,
Accounting, and Auditing
Book-keeping;
• recording of
business
transaction.
• Basic/first
entry
• Preparing on
demand
statements
such as trial
balance.
Accountancy;
• Compilation
of accounts
to know the
position of
the business.
• Review the
accounts to
make
business
decisions.
Auditing;
• Verification of
entries and
accounts to
find out their
accuracy.
• And report
those
findings to
the
shareholders.

10. Objectives
 Detection and prevention of fraud
 Detection and prevention of errors
 Identify true and fair view of the state of affairs.

11. Objectives
 Primary/Main Objective;
 Expression of expert opinion
 Secondary Objectives;
A. Detection and prevention of errors
1. Critical errors;
 Errors of omission
 Errors of commission
2. Errors of principles
3. Compensating errors
4. Errors of duplication

12. Objectives
B. Detection and
Prevention of Fraud;
 Embezzlement of cash
 Misappropriation of
goods and
 Fraudulent
manipulation of
accounts.

13. Objectives
 Specific objectives;
 Operational audit
 Cost audit

14. Classification
Classification
of Audit
Legislative
Control
Statutory
Govt.
Private
Periodical
Audit
External
Internal
Subject
Matter
Continuous
Periodical
Occasional
Financial
Operational
Cost
Management
Coverage
Complete
Partial
Manner
Standard
Balance
Post & Vouch

15. Review Questions
 Define an “Audit” and state the various objects
in audit.
 Discuss the main classes of errors and frauds
found in auditing in a firm’s accounts. Is the
auditor responsible for the detection of such
errors and frauds?
 What are the different types of frauds in
connection with accounts? Give three
examples of frauds and state how the auditor
can detect and prevent such frauds?

16. Review Questions
 What is meant by continuous audit and to what
type of business is it specially applicable?
State the merits demerits of such an audit?
 What are the advantages of having the
accounts audited by an independent
professional auditor?
 Explain clearly the differences between Book-
keeping, Accountancy, and Auditing and
Investigation.
 What do you mean by “routine checking” and
“Vouching”? How will you vouch the sales
book?

17.  Distinguish between Continuous Audit and
Balance Sheet Audit. What are the
disadvantages of Continuous Audit and how
will you gourd against them?
 Differentiate the following;
a. Statutory audit vs. private audit
b. Internal vs. external audit
c. Continuous vs. periodical audit
d. Financial vs. cost audit
e. Audit of joint stock company vs. partnership firm
Review Questions