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FEB Errors Of Omission Principles of Auditing Notes

7
It means
Q no 1:whatthe error and
is auditing in which the transaction
its objective ? has been completely omitted from the records .Such errors can be located
through checking.

Errors Of Principle
Introduction to Auditing

These errors are occurred when accounting principle are not strictly followed.The example of such errors.
1. To show the revenue expenditures as capital
2. omission of outstanding assets and
Auditing means liabilities the accounting data in order to determine reliability of the
to examine
3. Incorrect
financial valuation .The first Companies act was introduced in England and audit became a statutory
statement
requirement for join stock company .The first publication on double entry system of book keeping came in
1494 in which the author Luca Pacialo also stated duties and responsibilities of an auditor . In fifteen
Compensatory Errors
century it was common to call an auditor to ensure absence of fraud in the records kept by stewards of
estates.
Compensatory error meas an error which is canceled by an other error of same amount in the opposite direction
.Detection of such errors require a complete and exhaustive preparation on the part of an auditor.

Detection of fraud
The purpose of auditing is to detect the frauds.Fraud is intensional and is knowingly committed ti defraud the proprietors
Definition
of the concern. Frauds are more serious than errors.The frauds can be detected through vouching,verification and
routine checking.

Misappropriation Of Cash
Auditing is concerned with the verification of accounting data with determining the reliability of
accounting statement and reports .

Objects of Auditing

objective of auditing can be divided in to following three categories.

1. Primary object
2. Secondary object
3. Implied object

1 Primary object

Independent Opinion
Forming and expression of an independent opinion of auditor about the accounts of client is an important
objective if audit.Auditor fives his opinion whether the accounts are showing true and fair view or not.
Accounting Policies
The main object of auditing is to examine the accounting policies . Accounting policies are needed for preparing the
accounting records. The auditor can express his opinion in the accounting policies in the best interest if business.

Fairness of Statements

Auditor examine the books of accounts to Know the reliability of financial statements.The financial statement can show
true and fair view after auditing
Prescribed Laws

Another object of audit is to check that prescribed laws were followed or not in preparation of financial statements.There
are various laws which govern the working of many businesses.

2 Secondary Object
Detection of Frauds
Unintentional mistakes in financial statements are called errors.the purpose of audit is to detect the following errors.

Errors Of Commission
When incorrect entries are made in the books of accounts either wholly or partly.The errors are called errors of
commission.

Errors Of Omission

It means the error in which the transaction has been completely omitted from the records .Such errors can be located
through checking.

Errors Of Principle

These errors are occurred when accounting principle are not strictly followed.The example of such errors.
1. To show the revenue expenditures as capital
2. omission of outstanding assets and liabilities
3. Incorrect valuation

Compensatory Errors
Compensatory error meas an error which is canceled by an other error of same amount in the opposite direction
.Detection of such errors require a complete and exhaustive preparation on the part of an auditor.

Detection of fraud
The purpose of auditing is to detect the frauds.Fraud is intensional and is knowingly committed ti defraud the proprietors
of the concern. Frauds are more serious than errors.The frauds can be detected through vouching,verification and
routine checking.

Misappropriation Of Cash
Misappropriation of cash takes place by no recording less recording or more recording of cash received or cash paid.
Misappropriation Of Good

Misappropriation of good take place by over valuation/under valuation. over invoicing in under invoicing if goods
purchased sold and stored.
Falsification of accounts

This fraud is generally committed by higher management ti show more or less profit . It can be detected with a great
difficulty
Prevention of Frauds And Error

The purpose of auditing is ti prevent errors and fraud. An auditor can put a moral check upon the staff by detecting them.
Auditor points out the weal points and offers his suggestions for making improvements in the management and internal
control of the organization.

3 Implied Object
Attract Investors
The object of audit may be ti attract the more investors .When people find that in the company audit is done they easily
agree to invest their money without any fear.
Admission
The purpose of the audit may be admission of partner. The audited accounts show the true and fair view of business.
Loan
The object if audit may he loan. The management can approach the banks and other money lenders.The banks and
other financial institutions easily rely upon audited accounts.

Profits

The purpose of audit is to check the variations in profits. Business life depends upon the profits. an expert auditor can
analyses the fluctuation in profits.

Purchase Consideration

Determination of purchase consideration is also the object of audit.Through audited accounts the true value of assets
and liabilities can be determined
Proper Supervision
The object of audit may be the proper supervision of business. Some timed owner can nor look after the business
personally. Audit acts as a check in employees and it saves the owner from losses.

Satisfaction Of Taxation Officer

The object if audit may be to satisfy the taxation officers. Through audit, tax matters are easily settled.

Posted 7th February 2015 by Unknown

1 View comments

ali baba February 6, 2015 at 11:50 PM

thanks
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