MODULE 1- INTRODUCTION
AUDITING AND ASSURANCE
PART -2
Advantages & limitations of auditing,
difference between accountancy and
auditing
Advantages of auditing
For the business itself: 3. Joint stock company: they can judge the
1. Detection of errors and frauds performance of management also can value
their share in a better manner
2. Borrowings made easy
4. trust: can make their position in a clearly
3. Suggestions for improvement
manner.
4. Better reputation
5. Moral check on accounting staff
For government bodies:
6. Safeguards of assets
1. Tax purpose
For the owners: 2. Providing financial help
7. He can value his business on the basis
of audited accounts for the purpose of For others:
sale of business
1. Insurance companies can settle claim on the
8. 2. For partnership firms: dispute over basis of audited accounts.
the correctness of the profit can be
avoided. 2. Fixing purchase consideration.
Limitations of auditing
1. Not concerned with financial and 6. Too much dependence on the
managerial efficiency. personnel of the organization
2. Only a post mortem analysis
7. Lack of independence
3. Does not give a complete picture
8. Improper internal control
4. No detailed checking system
5. Too much dependence on the
opinion of experts 9. Professional judgement
Book Keeping, Accountancy, Auditing
Book Keeping Accountancy Auditing
it is concerned with the Accountancy It is the
keeping of a regular, begins where
correct , and systematic verification and
record of day-to-day book keeping critical
transactions of a business. ends. It is the art
of presenting the examination of
1. Recording the
transaction data of the correctness
2. Proper filing of voucher
transactions of the books of
recorded by the accounts.
3. Posting them into the book keepers of a
ledger
business concern
4. Totaling of different during a particular
accounts in the ledger
period.
5. Balancing
Difference between accountancy and
auditing
ACCOUNTANCY
AUDITING
It refers to recording, classifying It is the verification and critical
and summarizing business examination of the correctness of
transactions. the books of accounts.
The work of an accountant is It pertains to the determination of
restricted to the preparation of the range of activities and period of
financial statements and their records that are to be audited.
interpretation.
Objective of accounting is to
Auditing is to verify the correctness
determine the financial position, of the books of accounts and to add
profitability and performance of credibility to the financial
an organization. statements.
ACCOUNTANCY AUDITING
The accounting work is performed by The audit work is performed by auditors.
the accountants.
The accountants are employees of the
Auditors are the outsiders of the concern.
concern.
Accounting is governed by Accounting
Standards. Auditing is governed by Standards on Auditing.
Accounting work is undertaken
throughout the year. Auditing is conducted usually at the end of the
An accountant is not expected to have year.
knowledge of the principles of auditing
for his work.
An accountant is not required to certify An auditor should have the knowledge of
the correctness of the accounts. accounting for performing the audit work.
An accountant is not required to submit An auditor is required to certify the correctness
a report to the proprietor when work is of the accounts that he audit.
over. must submit a report to the proprietor when
ACCOUNTANCY
AUDITING
An accountant receives regular Auditor receives fixed amount of
salary as remuneration. audit fee as per agreement.
Remuneration of accountant is Remuneration of auditor is fixed
fixed by the management. by the shareholders.
An accountant is a permanent Auditors can be changed every
employee of the concern. vear
