The auditor sho-WPS Office.docx

The auditor should request management to rectify misstatements and adjust financial information. The \"Going concern concept\" in accounting assumes the organization will continue as a going concern for a long time without intention to close it down. Indicators of absence of this assumption include...

The auditor should request management to rectify misstatements and adjust financial information. The \"Going concern concept\" in accounting assumes the organization will continue as a going concern for a long time without intention to close it down. Indicators of absence of this assumption include negative net worth, negative working capital, adverse key financial ratios, negative cash flow, increasing unsaleable, loss of key perisomal, labor problems, infrastructure loss, new legislation, and management intentions. The Companies Act, 2013 prohibits the creation of secret reserves, which must be disclosed. Maintaining secret reserves can lead to a lack of true and fair view, asset checks, and insurance claims. It can also result in undue benefit to management and shareholder suffering. The materiality concept in accounting assumes all material items of expenses, incomes, assets, and liabilities are shown separately in the final accounts. Auditors must confirm materiality to avoid misstatements that could influence economic decisions. Materiality depends on the size and nature of the item and should be considered at both the overall financial and owner/shareholder levels. Secret reserves are created through various methods, including overstatement of assets and liabilities. They can be used to hide abnormal profits, tax evasions, and maintain confidence in banks. These reserves can be created through understatement of assets, overstatement of liabilities, and overstatement of assets. Objections against secret reserves include management fraud and the need to maintain legal reserves to maintain public confidence. Management is primarily responsible for preventing and directing errors and frauds through a good internal control system. Auditors, under CARO (2016), are required to report any fraud, its nature, and amount involved. They must confirm errors and frauds, ensuring management rectifies them and reporting the same to an appropriation. Auditors cannot be held responsible for undetected errors if they took reasonable steps to detect them. Secret reserves, which are not shown in the balance sheet, are created to mislead competitions.Misappropriation of goods, teaming & landing, and errors are unintentional mistakes that result in misstatements in books of accounts. Frauds involve intentional misrepresentation of financial information by management, employees, or third parties with the intention to cheat others or make illegal gains. Errors can be identified by high levels of suspense in accounts departments, sudden exits from high-level management, lack of proper documentation, paper proofs, and inadequate explanations from management or accountants. Auditors are responsible for addressing errors and frauds, ensuring accurate records and preventing fraudulent activities. Fraud refers to the intentional misrepresentation of financial information by management, employees, or third parties with the intention of cheating others or making illegal gains. There are various types of frauds, including manipulation or alteration of accounts, misappropriation of cash, and window dressing. Manipulation involves deliberate omission, recording bogus transactions, and presenting financial statements in a rosy light. Misappropriation can occur through not recording cash received, entering less amounts, or recording dummy cash payments. Posting to the wrong amount, recording errors, compensating errors, and errors of duplication can affect the trial balance. Posting errors are basic errors in passing accounting entries, while compensating errors cancel the effect of one error and do not affect the trial balance. Errors of duplication occur when an entry is recorded twice in the books of accounts, but do not affect the trial balance as both debit and credit effects are passed correctly. Errors of omission involve not recording transactions in the books of accounts, affecting the trial balance. Complete omissions are not recorded, while partial omissions are recorded partially. Errors of commission occur while posting transactions. Casting errors occur when totals or carrying forward balances are incorrectly calculated in the day book or ledger. Posting errors can occur by posting the wrong amount or to the wrong side of the amount. There are various types of errors, including errors of principle, clerical errors, omission errors, duplication commission, and incomplete casting posting receipting. Principle errors occur when accounting principles are not followed properly, such as treating capital expenditure as revenue, overvaluing stock, charging excess depreciation, ignoring prepaid income, and treating Dr. Expense on Cr. side. Auditing and investigation are crucial for ensuring accurate and fair representation of a business\'s balance sheet and profit and loss account. They are conducted for the business\'s owners or interested parties, and are legally compulsory for all companies. Auditors and investigators can be appointed by owners or management, and the form of audit report is generally prescribed by the relevant act. Re-work may occur if audits are not undertaken. Accounting involves maintaining books of account and preparing final accounts, while auditing examines these books to report if they accurately represent the business. It involves preparing Balance Sheets, Profit & Loss Accounts, and establishing the reliability and authenticity of financial statements. The process begins when book-keeping ends and ends with the submission of audit reports. Accountants do not require qualifications, while auditors need prescribed qualifications. They are independent professionals, and their scope varies depending on the law. They cannot commit errors or frauds in maintaining accounts. Auditing has inherent limitations, including difficulty in detecting errors and frauds, reliance on explanations from management, reliance on other experts, no assurance about future profitability and prospects, management influence, and matter of judgement. These limitations can lead to misrepresentation of actual facts, a lack of assurance about future prospects, and the potential for management to manipulate the auditor. Additionally, financial statements, based on historical costs, may not reflect the true picture of a company due to inflationary trends and cannot measure aspects like quality, pollution, or HR development. Therefore, auditing cannot guarantee a complete coverage of all aspects of a business. Financial statements of a company are studied by competitors to compare their profitability, liquidity, and efficiency. Employees and labor unions often demand pay scales and allowances, but management often refuses. Auditing examines accounting and financial records to determine if they provide a true and fair view. The primary objective is to express an opinion on the accuracy of the balance sheet, profit and loss statement, disclosure of material items, and compliance with legal requirements. The secondary objective is to detect and prevent errors and frauds. The financial statement is the responsibility of management, not the auditor. It serves various users, including shareholders, lenders, customers/debtors, investors, suppliers/creditors, and interested parties. Shareholders study the financial statements to determine the company\'s profitability, liquidity, and profitability. Lenders study the financial statements to determine the company\'s liquidity and profitability position. Customers/debtors study the financial statements before buying or placing an order, as a lack of financial soundness can lead to heavy losses. Investors study the company\'s profitability, return on investment, dividend payout ratio, and EPS. Suppliers/creditors study the company\'s financial statements to decide whether to supply goods or services on credit basis. Lastly, interested parties study the financial statements for partnership formation, mergers, and goodwill value determination. Auditing is an independent examination of any entity\'s financial statements, whether profit-oriented or not. It involves checking the books of account with supporting evidence to determine if the Balance-sheet and Profit & Loss statements provide a true and fair view of the business\'s state of affairs. Auditors carry out this examination, which includes a Balance-sheet, statement of Profit & Loss, cash flow statement, statements, explaining notes, and supplementary schedules. These statements are prepared in accordance with ICAI guidelines and accounting standards, satisfying the information requirements of different users. The term \"Audit\" originates from the Latin word \"AUDIRE,\" meaning \"hear.\" In ancient times, businessmen would appoint experts to hear accounting statements and make necessary comments. The origin of audit in India can be traced back to the Vedic period, with references to accounting and auditing in Atharva Veda. In 1494, Italian Luca Pacioli published a treatise on double entry book keeping, describing the duties and responsibilities of an auditor. The original purpose was to detect and prevent errors and frauds, as well as verify the accuracy of financial statements. Today, the focus is on ensuring the financial statements provide a true and fair view of financial affairs.