“Audit is an examination of the books of accounts and other information relating to a business that auditors carry out to be able to give a legal openion whether financial statements give true and fair view. “(ACCA).
In other words, auditing refers to a systematic examination of books, accounts, documents and vouchers of an organization to ascertain as to how far the financial statements of the business present a true and fair view of the concern. Audit also attempts to ensure that the books of accounts kept by the entity are properly maintained by the concern as required by law.
2.objectives of audit.
Following are the main objectives of audit.
(I) To check compliance of financial statements with applicable financial reporting standards.
International financial reporting standards are the set rules and regulations relating to the preparation of financial statements. It is compulsory for businesses organizations to prepare financial statements according to the guidelines provided by these standards. When an auditor carries out audit of the financial statements of an entity, the main objective of auditor is to enable himself to convey an openion as to whether or not the financial statements of an entity are prepared according to an applicable financial reporting framework.
(ii) Accountability, stewardship and agency.
An audit of a company s accounts is needed because in companies, the owners of the business are often not the same persons as the individual s who manage and control that business. The shareholders own the company but it is managed and controlled by its directors.
The directors have a stewardship role. They look after the assets of the company and mange it on behalf of the shareholders. In small companies the shareholders may be the same people as the directors.
(iii) Tax authorities require it.
Financial statements when audited provide a reasonable basis for the tax authorities to place reliance on them. Tax authorities use audited financial statements to determine the accuracy of tax returns filed by the companies and therefore require the company to have their financial statements audited.