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Meaning

Auditing means a systematic examination of the books, accounts and vouchers of an

organization that will enable the auditor to satisfy himself that the balance sheet is
properly drawn up which gives and true and fair view.

Distinction between Accountancy and Auditing

Accountancy Auditing
It involves collection, classification, It involves analytical and critical examination
summarization and communication of of the financial records and statements and
financial data the supporting documents

It measures business transactions in It reviews the truth and fairness of financial

terms of profit/ loss and assets and position and results
liabilities

The accountant is an employee of the The auditor is an independent person and his
enterprise and is paid salary services are hired for a fee

No qualifications have been prescribed Minimum qualifications have been

under the law for an accountant prescribed auditor

The accountant usually words on a The auditor has to be appointed every year
permanent basis

The accountant is not required to submit The auditor is required to submit a report on
a report on the financial statements the truth and fairness of financial statement
prepared by him examined by him

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Distinction between Internal Audit and External Audit.

Internal Audit External Audit

The Scope of this audit is decided by The Scope of this audit decided by law or
the management. by the contract with the auditor

An employee of the company, paid Wholly independent of the company, &

salary for the work to conduct auditor is paid fees for the professional
internal audit services

It is not compulsory under any law It is compulsory under law

Internal Auditor is responsible to the External Auditor is responsible to the

management of the company shareholders and to interested third
parties

INTERIM AUDIT

An interim audit is an audit conducted in between two annual audits. Its object is to enable
the company to declare an interim dividend. It involves a complete examination and
reviews of the accounts and records of the business up to the date of the audit. Interim
audit may be conducted for three months or six months period.

Audit committee

The companies Act. 2013 requires that every public company with a paid – up capital of
Rs. 5 crore or more shall constitute an “Audit Committee”. The committee shall consist of
three or more directors, and such number of other directors as the Board of Directors may
determine. Two – Third of the total number of members shall be directors, other than
managing or whole time directors. The members of the Audit Committee shall elect a
chairman from amongst themselves.

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Difference between Vouching & Verification: -

VOUCHING VERIFICATION

It means checking the accuracy of the of all It is a process to substantiate the validity of
the transactions which recorded in the assets and liabilities.
books of accounts.

It is a examination ofitems of Profit & Loss It is a examination of items of Balance

account Sheet

It is done by Audit clerks It is done by Auditor

It is to be done in the whole year. It is to be done at the end of the financial

year.

The objective is to examine the correctness, The objective is to confirm the ownership,
validity and completeness of the possession, existence, valuation and
transactions. disclosure of the items appearing on the
Balance Sheet.

CONTINUOUS AUDIT

On the basis of time internal, audit may be continuous or periodical. A continuous audit
is carried out round the year whereas a periodical audit is conducted at regular or irregular
intervals.

Continuous audit is suitable in case where the final accounts are to be presented soon
after the close of the financial year.

GOVERNMENT AUDIT

Audit of the accounts and financial statements of any government agency is called
government audit.

INTERIM AUDIT

An interim audit is an audit conducted in between two annual audits. Its object is to enable
the company to declare an interim dividend. It involves a complete examination and
reviews of the accounts and records of the business up to the date of the audit. Interim
audit may be conducted for three months or six months period.

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QUALIFICATION AND DISQUALIFICATIONS OF COMPANY AUDITOR

Chartered Accountant: A person shall be eligible for appointment as an auditor of a

company only if he is a chartered accountant means a person who is a member in
Practice of the Institute of Chartered Accountants of India (ICAI) and acting in capacity as

a) Individual

b) Partnership Firm

c) Limited Liability partnership

Disqualification of Auditor

Following persons shall not be eligible as auditor of the company: ‐

a) A body corporate other than LLP registered under the LLP Act, 2008

b) An officer or employee of the company.

c) A person who is partner or who in the employment, of an officer or employee of the

company.

d) A person who or his relative or partner

(i) is holding any security/interest in the company or its subsidiary or of its holding or
associate company or subsidiary of such holding company.

(ii) is indebted to the company or its subsidiary, or its holding or associate company in
excess of Rs. 5 lacs rupees

(iii) has given guarantee or provide any security in connection with the indebtness of any
third person to the company or its subsidiary for value in excess of Rs. 1 lacs.

e) A person or a firm who (whether directly or indirectly) has business relationship with
the company, or its subsidiary,

The business relationship shall be construed as any transactions enter into for a
commercial purpose except: ‐

a) Commercial transactions which are in the nature of professional services permitted to

be rendered by an auditor or audit firm by the professional bodies regulated such
members.

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b) Commercial transactions which are in ordinary course of business of the company at
arm’s length price as customer.

d) A person whose relative is a director or is in the employment of the company as a

director or key managerial personnel.

e) A person

(i) who is in full time employment elsewhere or

(ii) a person or a partner holding appointment as its auditor is at the date of such
appointment or reappointment holding appointment as auditor for more than 20
companies.

e) A person who has been convicted by a court of an offence involving fraud.

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