Page 28 - CA Inter Audit PARAM

CA Ravi Taori
finalization of audit of accounts.
OR

What is the meaning of ‘The scheme of auditing process'? What does the scheme of auditing process
envisage?
Answer (Similar to Core Audit Process we have studied before, this theory is based on old theory of audit)

➢ Aspects to be covered in Audit
The principal aspects to be covered in an audit of the financial statements are the following:

• An examination of the system of accounting and internal control to ascertain whether it is
appropriate for the business and helps in properly recording all transactions.

• Reviewing the system and procedures to find out whether they are adequate and comprehensive
and incidentally whether material inadequacies and weaknesses exist to allow frauds and errors
going unnoticed.

• Checking of the arithmetical accuracy of the books of account by the verification of postings,
balances, etc.

• Verification of the authenticity and validity of transactions entered into by making an examination
of the entries in the books of accounts with the relevant supporting documents.

• Ascertaining that a proper distinction has been made between items of capital and of revenue
nature and that the amounts of various items of income and expenditure adjusted in the accounts
corresponding to the accounting period.

• Comparison of the balance sheet and profit and loss account or other statements with the
underlying record in order to see that they are in accordance therewith.

• Verification of the title, existence and value of the assets appearing in the balance sheet.

➢ Assertions about account balances at the period end:
(a) Existence—assets, liabilities, and equity interests exist.
(b) Rights and obligations—the entity holds or controls the rights to assets, and liabilities are the
obligations of the entity.
(c) Completeness—all assets, liabilities and equity interests that should have been recorded have
been recorded.
(d) Valuation and allocation—assets, liabilities, and equity interests are included in the financial
statements at appropriate amounts and any resulting valuation or allocation adjustments are
appropriately recorded.

• Verification of the liabilities stated in the balance sheet.

• Checking the result shown by the profit and loss and to see whether the results shown are true
and fair.

• Where audit is of a corporate body, confirming that the statutory requirements have been
complied with.

Reporting to the appropriate person/body whether the statements of account examined do reveal a true
and fair view of the state of affairs and of the profit and loss of the organization.

www.auditguru.in 1.21