Page 8 - CA Inter Audit PARAM

CA Ravi Taori

QNO— Audit & Related Concepts (Definition) Old Course -- (N19M/M20R/ SM17/SM20/SM21/N21M)
INTRO.040 Bhaskar CNO - INTRO.040
Explain clearly meaning of Auditing. How would you as an auditor perform the audit.
OR
“An audit is independent examination of financial information of any entity, whether profit oriented or
not, and irrespective of its size or legal form, when such an examination is conducted with a view to
expressing an opinion thereon.”
Explain stating clearly how the person conducting this task should take care to ensure that financial
statements would not mislead anybody.
OR
"The person conducting audit should take care to ensure that financial statements would not mislead
anybody. Explain stating clearly the meaning of Auditing."
Answer ➢ Definition of Auditing:
“An audit is independent examination of financial information of any entity, whether profit
oriented or not, and irrespective of its size or legal form, when such an examination is

conducted with a view to expressing an opinion thereon.”
➢ Origin of the word Audit
Historically, the word ‘auditing’ has been derived from Latin word “audire” which
Audire means “to hear”. As earlier and even today much verification is through hearing
information and explanations of many people.

➢ The person conducting this task should take care to ensure that financial statements would
not mislead anybody. This he can do honestly by satisfying himself that:
none of the entries in the books of account has been omitted in the process of
compilation and nothing which is not in the books of account has found place in the
statements;
the accounts have been drawn up with reference to entries in the books of account;
the entries in the books of account are adequately supported by sufficient and
appropriate evidence;
the financial statement amounts are properly classified, described and disclosed in
conformity with accounting standards; and
the information conveyed by the statements is clear and unambiguous; (Cannot give
amounts in range, cannot give contradictory information)
the statement of accounts presents a true and fair picture of the operational results and
of the assets and liabilities.

Advantages of Independent Audit Old Course -- (M08E/N13R/P16M/N15R/N16R/ M19R/
QNO—
INTRO.100 Bhaskar CNO - INTRO.100 M18M/N18M)
New Course—(J25M)
RAG is proprietorship firm engaged in the manufacturing of textile and handloom products. It sells its
finished products both in the domestic as well as in the international market. The company is making
total turnover of Rs. 30 crores. It has also availed cash credit limit of Rs. 5 crores from Canara Bank. In
the year 2017-18, proprietor of the firm is worried about the financial position of the company and is
under the impression that since he is out of India, therefore firm might run into losses. He approaches a

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