What are the Objectives of an Audit?
Auditing is the systematic examination of the books of accounts and the other documents of the company which is conducted with the main objective of knowing that whether the financial statement prepared and presented by the company shows a true and fair view of the organizations.
The objective of an audit is to get reasonable assurance that Financial Statements of entity are free from Material Misstatement and Provide a Report on the Financial Statements in accordance with the auditor’s findings. The audit is independent and Systematic examination of Financial Statement and detailed investigation of Income and Expenses Reports, Accounting records such as Sales, Purchase, etc.
Auditors should keep in mind audit objectives at the time of the Examination of financial statements and finalizing the Current market price of the Assets. They are variable basis types of Audit.
7 Types of Audit Objective
Type of objective changes as per Type of Audit. Below is the list of 7 main types of audit and their objectives:-
- External – To check whether the Financial Statements that are prepared by the Management are providing an accurate and fair view. Financial Statements prepared are as per applicable Accounting and Auditing Standards.
- Internal – To Check Internal Control over financial reporting, compliance of Policies, compliance of Legal Aspects such as the applicability of Companies Act;
- Forensic – Recognize fraud cases, Control and decrease instances of fraud through the application of suggestions and recommendations and internal Audit control in the entity,
- Statutory – To check that entity is following rules and regulations of Act under which that it registered, they have to appoint the statutory auditor, who will conduct the statutory audit.
- Financial – To get reasonable assurance that the financial statements are free of material misstatement.
- Tax – Proper maintenance of the Books of Accounts and other records of similar nature and to Maintain Proper records of Income and tax expenses and deductions of the Taxpayers.
- Special Objective: Conducted as per Laws, and objectives vary as per laws.
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- Board can check that the principals and policies formulated and designed by them are implemented and followed by manpower or not.
- Financial Statements that are prepared by the management as per applicable financial reporting and auditing standards.
- Internal audit Team can verify that the Policy of Internal Audit Control is implemented or not, which is designed by them.
- Recognize fraud Cases and decrease the % of fraud Cases through robust Internal audit control.
- Provide a better representation of Financial statements and give an accurate and fair view.
- Evaluation of capacity and efficiency of all level management of the entity;
- The audit helps for the rehabilitation of sick units, reconstruction of entity, merger, and amalgamation among the companies.
- An external audit can be fruitful if the internal auditor is not reliable.
- The audit protects the interest of the Owner of the Entity.
- The process of Audit is very costly as the entity bears expenses like auditor’s remuneration, there living cost during the audit, including staff, reimburse the official traveling expenses incurred during an audit by them.
- All the Data, Reports, and information relevant to the audit process are provided by the management.
- The auditor conducts the audit on the sampling basis method. Due to this, some errors can’t be identified.
- Auditors have limited time to conduct the audit and they need to submit the audit report to the owner of the entity within a stipulated time.
- Results of internal audits do not publish to externals, and their results only provide to management.
- This is not possible for the auditors to find all errors and frauds in the Books of accounts and accounting records.
Limitations of Audit Objectives
- It does not cover audit of many vital aspects of an entity such as Management efficiency, Finances, and Business ethics.
- Clever manipulation and fraud in books of accounts and accounting records etc. are not disclosed by audit.
- Audit of Financial Statements does not provide exact confirmation of additional information and explanations which is taken by the auditor for an audit opinion.
- Design of Audit techniques and formulate of an Audit program for the collection of evidence may not be the same as the nature of Business.
- Explanations, data, reports, and other information provided by the management may not be correct and may affect the auditor for an audit opinion.
- There some type of audits which governs as per laws, in such audits, auditors appoint by regulating authority, so there is no independence of auditors.
- Financial Statements are prepared basis number of judgments depending on such elements, which may vary.
- Audit of Books of Accounts may not be entirely reliable as the evidence provided by the management.
- Audited Financial statements may not provide an accurate and fair view and exact position if the auditor takes faulty judgment/ Decision/ Opinion.
- Auditor can’t be an expert in all the verticals of the entity, he should believe upon a judgment of other experts like Valuers, Lawyers.
- There are some entities that can’t bear the expenses of the audit.
Important Points to Note
- The target of the audit objective is to form and express of True and fair view of financial statements, and audit is performed to get assurance that Financial Statements are free from all material misstatement.
- To check that Financial Statements are prepared as per accounting guidelines and reporting frameworks (IFRS) by the management.
- Employees, who will provide assistance to auditors and their staff, should have sufficient knowledge of Audit:- How is an audit to be conducted, what are the documents to be asked, what are the information, data, and report to be provided to auditors.
- It may be changed as per the requirement of an audit.
The company should employ some experienced manpower for its internal audit because if internal auditors find all the errors, fraud, etc., then investigation in such situations can be initiated at an internal level. The auditor should express audit opinion after consideration of audit objectives. The auditor should keep in mind all the relevant audit objectives during the audit because it helps them to find accurate information, errors, and frauds.
This has been a guide to what are the audit objectives. Here we discuss the Top 7 types of the audit with their objectives along with its advantages and disadvantages. You can learn more from the following articles –