Introduction of Auditing| Notes

 Origin of Auditing

              

The origin of auditing may be traced back to the 18th century when the practice of large-scale production was developed as a result of Industrial Revolution. It is found that some systems of checks and counter checks were applied for maintaining accounts of public institutions, as early as the days of the ancient Egyptians, the Greek and the Romans.The growth of Accounting profession in India is of a quite recent origin. It was an outcome of the Indian companies Act, 1913 which prescribed for the first time the qualifications of an auditor. Due to rapid growth in the size of business firms, it has become necessary that the accounts must be checked and audited by an independent person, known as auditor especially in case of joint-stock companies where the shareholders are drawn from far off places. That is why it becomes necessary to assure them that their investment is safe and that the directors and the managing directors etc. handling capital and accounts, have presented true and correct accounts.

Definition of Audit

The word “audit” is derived from the Latin word “audire” which means “to hear”. In olden times,whenever the owners of, a business suspected fraud they appointed certain persons to check the accounts. Such persons sent for the accountants and “heard” whatever they had to say in connection with the accounts. Since then there have been lot of changes in the scope and definition of audit. The following are some of the definitions of audit given by some writers:

According to spicer and Pegler, “An audit may be said to be such an examination of the books,Accounts and vouchers of a business as will enable the auditor to satisfy himself that the balance sheet is properly drawn-up, so as to give a true and fair view of the state of the affairs of the business, and whether the profit and Loss Accounts gives a true and fair view of profit or loss for the financial period, according to the best of his information and the explanations given to him and as shown by the books and if not, in what respect he is not satisfied”R.B. Bose has defined as audit as “the verification of the accuracy and correctness of the books of account by independent person qualified for the job and not in any way connected with the preparation of such accounts.” M.L. Shandily has defined auditing as “inspecting, comparing, checking, reviewing,vouching ascertaining scrutinising, examining and verifying the books of account of a business concern with a view to have a correct and true idea of its financial state of affairs”.From a closed scrutiny of the definitions given by various writers, it would be evident that these are different methods of saying a particular thing but still there is a lot of similarity therein. However, audit may be defined as :

1. an intelligent and a critical examination of the books of account of a business which,

2. is done by an independent person or body of persons qualified for the job,

3. With the help of vouchers, documents, information and explanations received from the authorities, so that,

4. the auditor may satisfy himself with the authenticity of financial accounts prepared for a fixed term and ultimately report that,

(i) the Balance Sheet exhibits a true and fair view of the state of affairs of the concern,

(ii) the Profit and Loss Account reveals the true and fair view of the profit or loss for the financial period, and

(iii) the accounts have been prepared in conformity with the law. In short, an audit implies an investigation and a report.