What Is Auditing

Date: 2015-10-07; view: 408.

Auditing is a very ancient activity. "Audit" is a Latin word that meant "he hears". In ancient times auditing was the process whereby the owner heard the account given by his steward of the use of the owner's resources. The origin of stewardship goes far back into the Middle Ages. It was the original purpose of accounting and was also called 'accountability'. Kings or lords who were away at war or for other purposes usually left their estates in the hands of a steward. The steward kept as an account to the owner, who might be illiterate and had to hear it (Latin audit – "he hears").

In the early days of auditing the prime qualifications for the position of an auditor was reputation. A man known for his integrity and independence of mind took this honoured position, the matter of technical ability being entirely secondary. In those days, the function of auditor was never confused with that of accountant. However, as accounting gradually became more complex, auditors became increasingly dependent on the expertise provided by accountants. Eventually, the audit function itself became totally dominated by the accountancy profession. By the 19^th century, many owners of businesses appointed one of their members to be an auditor of the financial statements prepared by the directors of a company. This was partly because the process of auditing had become more complicated as business itself became more complicated.

In its modern sense, an audit is a process (carried out by suitable qualified auditors) whereby the accounts of business entities including limited companies, trusts, etc., are subjected to scrutiny in such detail as will enable the auditors to form an opinions to their truth and fairness. To put it differently, its main aim is to give an opinion on whether the financial statements drawn up by the directors of a company give a fair presentation. This opinion is then embodied in an "audit report". In order to do this, an auditor needs to check the physical existence of internal control to ensure that transactions are likely to have been recorded correctly. If internal control is poor, he will ask for it to be improved and he will increase the amount of checking dome on sample transactions. It the control systems look good, relatively small samples of carious types of transactions may be checked.

Auditors would generally be expected to circularize a sample of the debtors to confirm that they exist. He would normally attend the count of the inventory. The rules for auditing are usually set out in auditing standards.

The qualifications that auditors must have are set down: membership of a CPA body in the US, or in the UK membership of one of four of the bodies of the consultative committee of the accountancy bodies. Auditing is carried out by individuals or forms which vary greatly in size. Some firms have hundreds of partners and thousands of stuff.

3. Read the text again and draw up an outline of it by identifying key sentences in each paragraph.

4. Describe the main aim of auditing.

5. Give a list of the main functions of auditors.

6. What qualifications are auditors required to have in the USA?