OBJECTIVES OF AUDITING

The objective of an audit is to express an opinion on financial statements. The auditor has to
verify the financial statements and books of accounts to certify the truth and fairness of the
financial position and operating results of the business. Therefore, the objectives of audit are
categorized as primary or main objectives and secondary objectives.

1. Primary Objectives of Audit: The main objectives of the audit are known as the
primary objectives of the audit. They are as follows:
a. Examining the system of internal check.
b. Checking arithmetical accuracy of books of accounts, verifying posting, casting,
balancing, etc.
c. Verifying the authenticity and validity of transactions.
d. Checking the proper distinction between capital and revenue nature of transactions.
e. Confirming the existence and value of assets and liabilities.

2. Secondary Objectives:These are such objectives that are set up to help in attaining
primary objectives. They are as follows:

a. Detection and prevention of errors:Errors are those mistakes that are committed
due to carelessness or negligence or lack of knowledge or without having vested
interest.Errors may be committed without or with any vested interest.
So, they are to be checked carefully. Errors are of various types. Some of them are:
 Errors of principle.
 Errors of omission.
 Errors of commission.
 Compensating errors.

b. Detection and prevention of frauds: Frauds are those mistakes that are committed
knowingly with some vested interest in the direction of top-level management.
Management commits frauds to deceive tax, to show the effectiveness of
management, to get more commission, to sell a share in the market or to maintain the
market price of share, etc.
Detection of fraud is the main job of an auditor.
Such frauds are as follows:
 Misappropriation of cash.
 Misappropriation of goods.
 Manipulation of accounts or falsification of accounts without any misappropriation.
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ADVANTAGES OF AUDITING
1] Assurance to the Owners/Investors
One of the biggest advantages of auditing is that it offers assurances to the owners, investors,
shareholders etc. The owners of the business will be assured about the accuracy of their books of
accounts. They will be satisfied with the workings of their various departments and the overall
efficiency and profitability of their business operations. It is the same case with investors, who
will find assurance in the books of accounts after auditing.
2] Errors and Frauds
An error is something that is done without the intention to fraud the company, it is an innocent
mistake. Fraud, on the other hand, is deliberate. During the process of auditing, both errors and
frauds are discovered. Auditing also helps prevent such errors and frauds. It creates a fear of
being detected.
So auditing helps us minimize the risks of errors and frauds in our books of accounts but does
not eliminate the risk entirely. There is always the chance that the error may go unnoticed, and
the fraud is very cleverly hidden so may go undetected.

3] Independent Viewpoint
If the auditor is an external auditor, the business can get a second opinion on their financial
statements and their financial standing as well. An external auditor will closely inspect the books
and be completely true and fair in his opinion as he has no hidden agenda. If he says the
accounts are true and fair, it has a lot of weightage with the company and the investors.

4] Moral Check
One of the other advantages of auditing is that the staff and the workers of the company do not
try to steal or defraud the company. They are under constant scrutiny since they know that the
accounts will be audited. Any irregularities can be identified during such an audit, and they will
be caught eventually. This helps the staff in being honest and responsible at all times.

5] Stakeholders Confidence
After auditing stakeholders like creditors, investors, banks, debenture holders etc. can rely on the
books of accounts with more confidence. And so after auditing by an independent authority, the
financial statements have more credibility.

LIMITATIONS OF AUDITING

1] Cost Factor
A very thorough and detailed audit would be a costly affair. It is not cost effective. So the
auditor has to limit the scope of his audit and use techniques like sampling and test checking.

2] Time Factor
Auditors generally work on a very specific timeline. Sometimes this is due to statutory
requirements. This means he has to audit a whole year’s accounts in a few weeks. Hence
insufficient time is one of the main limitations of auditing.

3] Inconclusive Evidence
Generally, the audit evidence the auditor collects is persuasive in nature, not conclusive in
nature. So there is never cent percent conclusive evidence in most cases while auditing.

This is one of the major limitations of auditing. There also a lot of use of estimates in
accounting. The auditor cannot measure or comment on the exact accuracy of these estimates.
He has to rely on his knowledge.