Secondary Objective of Audit

1. Detection & Prevention of

Errors

i. Clerical Error:
a.Errors of omission
b.Errors of
commission
c.Compensating
errors
d.Errors of
duplication

ii. Errors of
Principles

2. Detection & Prevention of

Frauds

i. Misappropriation of Cash
a. Inflating payments
b. Suppression of receipts
ii. Misappropriation of Goods
iii. Manipulation of Accounts or
Falsification of Accounts

 Errors of Ommission- this happens when a transaction

is partially or completely ommitted from the books of
accounts , eg. Invoice has been received ,but not been
entered in anywhere in the books of accounts.
Errors of Commission - it happens due to wrong
totalling , wrong postings , etc. For an e.g, instead of
debiting X account , it has been credited.
Compensating Errors- it happens when an error
offsets the effect of another error.
Errors of Duplication - when same transaction is
entered twice or more times at different times and dates.

How to locate errors:

Trail balance should be checked. It is possible that there might be
errors in totaling of the trial balance itself.
list of debtors and creditors should be compared with the trial
balance.
compare names of the accounts appear in the ledger with the
names of the accounts as have been recorded in the trail balance.
Totals of the cash book, purchase and sales book should be
checked and see that they have been properly recorded in the trial
balance.
Verify that no entry of the books of the original entry has
remained unposted.
Verify the totals of the books of account.
Verify journal entries. It may happen that the mistake may be on
the account of wrong journal entry.

Types of Audit

1. Audit under Law

2. Audit of the Accounts of Private
Firms
3. Audit of the Accounts of Private
Individuals
4. Audit of the Accounts of Trustees &
Executors

1. Audit under Law

Joint stock companies incorporated under
companies act1956
Banking companies governed by BCRA 1949
Insurance companies governed by insurance
act 1938
Cooperative Societies
Public & charitable trusts
Local authorities & government undertakings

 Audit of the Accounts of Joint Stock

Companies
Audit of the Accounts of Private
Firms
Audit of the Accounts of Private
Individual
Audit of Trust Accounts

2. Classification of Conduct of an
Audit

Continuous Audit
Final Audit
Interim Audit
Partial Audit
Balance sheet Audit

Classification on the Basis of Specific

Objectives
Cost Audit
Management Audit
Occasional Audit
Tax Audit
Environmental Audit
Social Audit
a. Contribution towards People (Specially
Handicapped)
b.Product or Service Contribution