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Definition of auditing:

According to Montgomery, a prominent American accountant:

"Auditing is a systematic examination of books and records of a businesses and other organization, in order to ascertain or verify, and to report upon the facts regarding its financial operation and the result thereof."

                Scope of audit

We can see scope of auditing by following headings:
Legal Requirements:

The auditor can determine the scope of an audit of financial statements in accordance with the requirements of legislation, regulations or relevant professional bodies. The state can frame rules for determining the scope of audit work. In the same way professional bodies can make rules to conduct the audit. The auditors can follow all the rules applicable on the audit work while checking the accounts of a business concern

Audit of all aspects of entity:

The audit should be organized to cover all aspects of the entity as far as they are relevant the financial statements being audited. A business entity has many areas of working. A small entity may have a few functions while large concern has many functions. The auditor has duty to go cover all functions so that the reader may know about all the working of a concern.

Reasonable assurance:

The auditor should obtain reasonable assurance that information contained in underlying accounting records is the basis of preparation of financial statements. The auditor can use various techniques to test the validity of data. All auditors while doing the audit work usually apply the compliance test and substantive test. The auditor can show such information in the report.

Reliable financial information:

The auditor assesses that information contained in the underlying accounting records and other source data is reliable. He studies and evaluates accounting system and internal controls. He determines the nature, extent and timing of other auditing procedure.

Sufficient accounting record:

The auditor checks that information contained in the underlying accounting records and other relevant data is sufficient. He carries out other tests, enquiries and other verification procedures of accounting transactions and account balances, as he considers appropriate. There are compliance test and substantive test I order to examine the data. The vouching, verification and valuation techniques are also used.

Comparison of financial statements:

The auditor determines whether the relevant information is properly communicated.  He compares the financial statements with the underlying financial records and other source date. He checks whether they properly summaries the transactions and events therein. The auditor can compare the accounting record with financial statements in order to check that same data has been processed for preparing the final accounts of a business concern.

Testing management judgments:

The auditor determines whether the relevant information is communicated properly. He considers the judgments that management has made in preparing the financial statements. The auditor assesses the selection and consistent application of accounting policies. He checks the manner in which the information has been classified and the adequacy of disclosure. The auditor must have the quality of judgment when accounting books do not provide the true data.

Judgments increase work:

Judgments increase the work of auditor. He determines the extent of audit procedures. He assesses reasonableness of judgments. He checks estimates make by management in preparing financial statements. The accounting data is based on personal judgment of accountant and managers in preparing final accounts. Such judgments also increase work of an auditor. He is also bond to make guess work on the basis of available data.

Evidence is persuasive:

The audit evidence available to auditor is persuasive rather than conclusive in nature. Due to judgments and persuasive evidence absolute certainty in auditing is rarely attainable. That is why the auditor can express an opinion as true and fair instead of exact and cent percent correct. The personal judgments affect the value of many items. The value of such items becomes and opinion so cent percent accuracy is not there.

Chance of misstatements:

The auditor carries out procedures designed to obtain reasonable assurance that financial statements are properly stated in all material respect. Because of test nature and other inherent limitations of an audit, together with limitations of any system of internal control, there is an unavoidable risk that even some material misstatements may remain undiscovered. The statements show true and fair view instead of exact view of operations.

Indication of errors:

The auditor may get an indication that some fraud or error have occurred which could result in material misstatement. The auditor should extend procedures to confirm or dispel his suspicion. It is the duty of auditor to check cent percent items he must try to discover the errors in accounting books and other records when he smells any doubt he should clear the doubt or confirm it while going through the record.

Expressing opinion:

The auditor can express unqualified opinion if he is satisfied about financial information of business. When he finds weaknesses in accounting record then he should express qualified opinion or disclaimer of opinion.

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