Principle Aspects Covered by Auditing

Verification in Auditing

Auditing is a systematic examination or verification of assets and liabilities involved in the accounting process. It is usually performed by an auditor to make sure every department records documented transactions and specifically free from any fraudulent activity. Auditing can be done internally and externally. Intra department auditing is more frequently done within the department by either the chief of the particular department or any trustworthy employee. 

In the case of external auditing, an outsider is preferred to cross-check the account books modestly. Importantly, an auditor has to be remarkably sterile in his job without rendering any kind of partiality towards an organization. Verification of assets and liabilities doesn't only mean reviewing account books but also internal systems or control of an organization.

Who Should Initiate Auditing?

However, in India, anyone who is professionally a chartered accountant from The Institute of Chartered Accountants of India (ICAI) can do the auditing independently in any firm. Vouching is reckoned to be the backbone of auditing since it aids in detecting frauds or fallacies to provide enhanced results in balance sheets or income statements. Therefore, this proves the importance of vouching in auditing

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Basic Principles in Auditing

There are 7 basic principles which the auditors prominently adhere for a better and profound audition:

1. Morality, Objectivity, and Independence.

It is the responsibility of the auditor, to be honest, and sincere while he is auditing and importantly he is not allowed to favour the organization. He must not indulge himself in any kind of malpractices and must remain unbiased throughout the whole process of auditing. The next major principle is independence. So the auditor is independent and unbiased the whole process of auditing.

2. Confidentiality or Non-disclosure.

The auditor gets full access to the organization's sensitive financial information. So he needs to respect it.

He cannot let any other party get access to this information unless the law allows it. The organization trusts him entirely so he has to be more careful with their certificates and documents.

3. Capabilities and Skill

The auditor must be qualified in the field of auditing and he must be updating himself about the new announcements and changes. If required he can take training and workshops to know the procedures in a better way.

4. Work Performed By Others

The auditor has many employees who work under him. But then the auditor will be fully responsible even if his workers had worked for him. And so he must be accurate in his work and review it properly.

5. Documentation

The auditor needs to maintain a record of his auditing files concerning his auditing work as it may serve as evidence that the auditor has done his work. And also the clients can check on his work.

6. Assurance and Controls

The auditor must be sure that the financial status of the company is fair and true. He also must ensure all the material information has been recorded properly in the respective accounts.

7. Audit Evidence

To support his final opinion, the auditor himself must collect the required evidence. This collection is made from compliance and substantive procedures

And there are two sources of this evidence, they are internal and external. The external evidence is always more dependable.

Verification in Auditing

Verification in auditing is a mandatory process, which involves active verification of assets and liabilities. For instance, it may demand weighing, identification, and counting of assets. Verification of assets and liabilities verifies the following conditions:

• Precise recording

• Validity

• Legal ownership and possession

• Freedom from hindrance or encumbrance

• Valuation of the asset. 

Solved Example

Q. Explain the physical verification process involved in Auditing.

Answer: Certain things has to be physically verified to preserve the same which many include

• Capital-in-hand

• Stock-in-hand

• Land and building details

• Plant and machinery

• Depositions and investments

• Security

• Bill details

This process is legislated by law in certain countries. Verification in auditing can be done either on-site or off-site. On-site verification requires the physical presence of the auditor. In off-site verification, the auditor may not be physically present but the investigation or enquiring ought to take place in any online mode.

Did You Know?

Walter Diemer was an accountant who invented chewing gum in the year 1928. Before manufacturing the successful athletic shoe, Nike co-founder, Phil Knight conferred suggestions with his accountant. History ascertains that double-entry bookkeeping was invented in the 13th century. Likewise, internal auditors were auditing their own company even before the 15th century. As soon as commerce and industry evolved, control measures and audits came into action.