Q: Auditing

Auditing is a systematic examination of the books, records, documents, vouchers etc of a

business or other organization, in order to ascertain or verify, and to report upon the facts
regarding its financial operations and the results thereof.

Auditing is to express an opinion on the quality of financial statements.

Q: Difference between Accounting and Auditing

Basis for Accounting Auditing
comparison

Meaning: Accounting means systematically keeping Auditing is an activity of

the records of the accounts of an
organization and preparation of financial
statements at the end of the financial year.
Governed By: Accounting Standards
Standard Provider The International Accounting
Standards Board (IASB) is the
independent, accounting standard-setting
body of the IFRS Foundation.
Work performed Accountant
by:
Purpose: To show the performance, profitability
and financial position of an organization.
Start: Accounting starts where bookkeeping
ends.
Period: Accounting is a continuous process, i.e.
day to day recording of transactions are
done.
verification of books, records,
financial statement etc. 
Standards on Auditing
International Standards on
Auditing (ISA) are
professional standards for the
performance of financial audit
of financial information.
These standards are issued
by International Federation
of Accountants (IFAC)
through the International
Auditing and Assurance
Standards Board (IAASB).
Auditor
To reveal the fact, that to
which extent financial
statement of an organization
gives true and fair view.
Auditing starts where
accounting ends.
Auditing is a periodic process.
Q: Objectives of Auditing
Objectives of auditing can be broadly categorized into three:

1. Main Objectives
2. Secondary Objectives
3. Specific Objectives

Main Objectives of Auditing:

The auditor expresses his opinion about the quality of the financial statements concerning proper
disclosure of facts in the financial statements and the truth and fairness of the financial position
and operating results of the enterprise, as disclosed in the balance sheet and profit and loss
account respectively.

Secondary Objectives of Auditing

Detection and Prevention of Errors: Errors are made unknowingly by anyone who lacks
knowledge or due to oversight on the part of the individual.

Detection and Prevention of Frauds: Fraud means false representation or entry made
intentionally or without belief in its truth with a view to defraud somebody.

Specific Objectives
Generally auditing refers to financial statement audit. But auditing may encompass others areas
like operations, management policy, cost records and so on. Accordingly, there will be specific
objective in respect of each type of such audits.

Q: Types of Errors
1. Clerical Errors: These errors are committed in posting, totaling and balancing. Such
errors may again be subdivided into:
a) Errors of Omission: The error of omission in one where a transaction has not been
recorded in the books of accounts either wholly or partially.
b) Errors of Commission: When a transaction has been recorded but has been wrongly
entered in the books of original entry or posted in the ledger, error or commission is said
to have been made.
2. Errors of Principle: Such errors arise when the entries are not recorded according to the
fundamental principles of accounting.
3. Compensating Error: A compensating error or off-setting errors is one which is counter
balanced any other error or errors.
4. Errors of Duplication: Such errors arise when an entry in a book of original entry has
been made twice and has also been posted twice.
Q: What is fraud?
Fraud means false representation or entry made intentionally or without belief in its truth
with a view to deceive somebody.

Q: What are the chief ways in which fraud may be perpetrated?

1. Embezzlement of Cash
2. Misappropriation of Goods
3. Fraudulent manipulation of Accounts

1. Embezzlement of Cash:
Cash may be misappropriated by:
a) Omitting to enter any cash which has been received,
b) Entering less amount than what has been actually received,
c) Making fictitious entries on the payment side of the cash book,
d) Entering more amounts on the payment side of the cash book than what has been
actually paid.

2. Misappropriation of Goods:
When any person who has been entrusted with the possession of goods fraudulently uses
them or keeps them as his own without the permission of the actual owner is called
misappropriation of goods.

Appropriating (taking) goods dishonestly for one's own use without permission of the
actual owner is called misappropriation of goods.

3. Fraudulent manipulation of Accounts:

These types of manipulation are done by directors or managers or other responsible
officials with the object of showing more or less profit what actually they are.

Q: What are the purposes of showing more or less profits than what
actually they are?
Purposes of showing more profits:
1. To get commission on profits,
2. To retain their services by showing their efficiency in boosting profit for the
shareholders,
3. To sell the shares hold by them at a high price by declaring higher dividends,
 4. To obtain further credit (bank loan) by showing the financial position of the business
better than what actually it is,
5. To attract more subscribers for the sale of the shares of the company, etc.

Purposes of showing less profit:

1. To purchase shares in the market at a lower price,
2. To reduce or avoid the payment of income tax,
3. To give a wrong impression about the success of the business to competitors.

Q: What are the possible ways to falsify the accounts?

1. By not providing any depreciation or providing less depreciation or providing more
depreciation.
2. By under valuation or over-valuation of assets and liabilities
3. By showing fictitious sales or purchases or returns in order to show more or less profits
whatever the case may be,
4. By the utilization of secret reserves during a period when the concern has made less or no
profit, without disclosing that fact to the shareholders,
5. By sharing revenue expenditure to capital account, or vice versa,
6. By crediting the revenue account with the income which will be received next year or not
crediting the profit and loss account with the income which has accrued but which has
not been received.

Q: Auditing VS Forensic Accounting

Definitio Auditing is a systematic verification Forensic accounting is the process of

n of financial statement in order to
ascertain the truth and fairness of the
financial performance and financial
position.
Who A certified auditor conducts
auditing.
Purpose Detecting errors and frauds to
provide expert opinion.
looking for fraud, which is any intentional
misstatement, and also documenting it for
litigation purposes.
A forensic accounting engagement is
conducted by a forensic accounting expert.
The objective is to find out who committed
the fraud, how they did it, how much they
took, and how to stop it from happening in
the future. 
Q: Classification of Audit.
a) Classification on the basis of Legislative Control:
i. Statutory Audit: Statutory audit is mandatory which should be carried out each
year. All activities should be done according to the International Standard on
Auditing.
ii. Government Audit: Government audit is done by the Comptroller and Auditor
General of Bangladesh (C & AG). The audit of accounts of various government
departments and local bodies are done by government audit.
iii. Private Audit: It is non compulsory audit which is done in sole proprietors,
partnership firms etc.
b) Classification on the basis of relation of auditor with regard to management:
i. External Audit: Statutory audit in public limited company is considered as
external audit where the auditor is appointed by the shareholder not by the
management.
ii. Internal Audit: Internal audit in done by the internal employee as an auditor who
is appointed by the management.
c) Classification on the basis of Periodicity:
i. Continuous Audit: A continuous audit involves a detailed examination of the
books of accounts at regular intervals.
ii. Periodical Audit: Periodical audit is taken up at the close of the financial period
when income statement and balance sheet is prepared.
iii. Interim Audit: Interim audit is conducted in between the two annual audits.
iv. Occasional Audit: This type of audit is conducted once a while whenever the
need arises and the client desires it to be carried out.
d) Classification on the basis of Subject Matter:
i. Financial Audit: Financial audit is examination of financial statements.
ii. Cost Audit: Cost audit is audit of cost records.
iii. Operational Audit: Operational audit is a review of operations of an entity.
iv. Management Audit: Management audit is critical review of policy and practice
of management.
e) Classification on the basis of Coverage:
i. Complete Audit: There is no restriction placed on auditor in the matter of
coverage of audit.
ii. Partial Audit: The areas of audit are delimited by specific agreement.