What is an Audit?

As long as the business unit was small and was managed by one owner: there was neither any need for maintaining accounts or Audit. However with the increase in the size of the business and emergence of partnerships and Joint stock company organizations there, was separation between ownership and management of business unit, there arose need for maintaining detailed account of the business transactions. Books of accounts were maintained by the employees and the owners like partners in a partnership firm and shareholders in a Joint Stock Company, are to be assured that these accounts are properly maintained. So, Audit of these accounts by an independent expert in the field was found necessary

An audit is defined as an examination of accounting records to establish their reliability and the reliability of statements drawn there from, It involves verification of accounting data, to determine their accuracy and reliability. It involves examination of books of accounts and vouchers. The Institute of Characters Accountants of India defines Auditing as “Independent examination of financial information of any entity, whether profit oriented or not and irrespective of size or legal form, when such an examination is conducted with a view to expressing an opinion there on”.

Auditors’ reports are read by owners like shareholders, Creditors, Bankers who want to lend money or investors in the shares of the company etc. If the accounts are audited, It is not a guarantee as to the future viability of an enterprise. Similarly auditor’s report does not guarantee that the business is being conducted or managed efficiently. Still There is a general feeling in the minds of the public that Nothing can go wrong with an organization who’s Accounts have been audited. So, it is extremely important that the auditors carryout their assignments with ut most Professional care and sincerity to uphold this faith reposed by the public in them.

In view of the importance of the audit, it was felt necessary that there should be some set standards for the conduct of the audit so that there is some uniformity in the conduct of audit. Every auditor will conduct the audit In the same manner and the reader of the audit report can presume that accounts have been properly audited even through they are audited by anybody.

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