Audit is an independent examination of financial information of an entity, whether profit

oriented or not, irrespective of its size or legal form, where examination is conducted with a
view to express an opinion.

Person conducting audit should take care about that the financial statement would not
mislead someone. For this Auditor should take satisfaction of the following:-

 Accounts should be prepare based on entries

 Entries should be based on vouchers and invoices
 And entries shall not be omitted
 Information in Financial Statements should be Clear & Un-ambiguous
 And Amount shown in Financial Statements Should be properly classified, described and
disclosed
 Auditor shall ensure that the Financial Statements give True & Fair View

Objectives Of Audit:-
As per SA200 “Overall Objective of an Independent Auditor” states two basic objectives:-

 Obtain Reasonable Assurance about whether Financial Statements are Free from
Material Misstatements or not,
 Auditor should give appropriate Report as per the situations

Scope of Audit:-
The following points merit considerations in regard to scope of audit:-
1) The audit should be organized to cover all Aspects relevant to the Financial Statements
2) To form an opinion on Financial Statement, auditor should be reasonably satisfied as to
whether information contained in underlying accounting records and other source data is
reliable and sufficient.
3) Auditor should also decide whether the information is properly disclosed or not.
4) Auditor Assesses the reliability and sufficiency of Information by:-
a) Making Study and Evaluation of accounting system and internal control.
b) Carrying out Tests and Enquiries and other verification procedures.
5) Auditor determines whether the relevant information is properly disclosed in Fst. By:-
a) Comparing it with underlying accounting records and other source data.
b) Considering whether the judgments of management are consistence.
6) The auditor is not expected to work outside the scope of his competence.
7) If there is any constraints on the scope the auditor should express a qualified or disclaimer
of Opinion.
Aspects to be covered in an Audit
The principal Aspects to be covered in an audit of Financial Statements of accounts are the
following:-
a) The auditor should make examination of accounting systems and internal control to
ascertain whether it is appropriate for the business and helps in properly recording all
transactions.
b) Reviewing the systems and procedures to check whether they are adequate and
comprehensive and if incidentally material inadequacies and weakness exists to allow
frauds and errors going unnoticed.
c) Checking the arithmetic accuracy of the books of accounts.
d) Verification of the authenticity and validity of transaction entered in the books of
accounts with the supporting documents.
e) Ascertain whether a proper distinction is made between the revenue and capital items
and whether the amount of income and expenditure adjusted in the accounts
corresponding to the accounting period.
f) Verification of title, Existence and value of the assets appearing in the balance sheet
g) Verification of liabilities stated in the balance sheet.
h) Comparison of balance sheet and profit and loss account with underlying accounting
records and other source data.
i) Checking the results shown to see whether the results shown are True & Fair.
j) Where audit is of corporate entity, confirming that the statutory requirements have
been complied with.
k) Reporting to the appropriate person/body about the opinion whether the financial
statements are free from material misstatement or not.

Inherent Limitation of Audit

The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore
obtain absolute assurance that the financial statement are from any misstatements due to
error or fraud.
This because of the inherent limitations of audit. The Inherent limitations are arises from the
following:-
1) The nature of Financial Reporting:- the preparation of financial statements are involving
judgments by management in applying the requirements of entity’s applicable financial
reporting framework to the facts and circumstances of the entity. In addition , there are
many FST items involving subjective decisions or assessments or degree of uncertainty, and
there may be a range of acceptable interpretations that may be made.
2) The Nature of Audit Procedures:- There are practical and legal limitations on the auditor’s
ability to obtain audit evidences. Ex:-
i) Management or other may not provide the information requested by the auditor.
ii) Frauds may involves sophisticated/complex and carefully organized schemes
organized to conceal it.
iii) An Audit is not an Official Investigation in alleged wrongdoing. Accordingly, the
Auditor is not given such specific legal powers, such as power of search, which may
be necessary for such an investigation.
3) Timeliness of Financial Reporting and the Balance between the benefit and the cost :-