The word “audit” is derived from the Latin word “audire”, which means to hear. In middle ages, whenever the owners of a business suspected fraud, they appointed certain persons to check the accounts. Such a person sent for the accountants and “heard” whatever they had to say in connection with the accounts. It was an Italian, Luca Pacialo, who first published his treatise on double entry system of book-keeping for the first time in 1494. He mentioned and described the duties and responsibilities of an auditor. Since then there have been lot of changes in the scope and definition of audit and responsibilities of an auditor.
As has been mentioned above, the original object of an audit was principally to see whether the accounting party had properly accounted for the receipts and payments of cash. In other words, the object of audit was to find out whether cash had been embezzled and if so, who embezzled it and what amount was involved. Thus, it was only an audit of Cash Book but with the development and expansion of business activities, the principal object of modern audit is to see whether the balance-sheet exhibits a true and fair view of the state of affairs of a company and whether it is drawn up according to the Companies Act, in the case of the audit of a company. Detection of fraud is an incidental object of modern audit.
Spicer and Pegler have defined an audit as “such an examination of the books, accounts and vouchers of a business as will enable the auditor to satisfy himself that the balance-sheet is properly drawn up, so as to give a true and fair view of the state of the affairs of the business, and whether the Profit and Loss Account gives a true and fair view of the profit or loss for the financial period, according to the best of his information and explanations given to him and as shown by the books, and if not, in what respect he is not satisfied.”
- R. Dicksee defines: “An audit is an examination of accounting records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they purport to relate.”
From the above definitions, it would be seen that an auditor has not only to see the arithmetical accuracy of the books of account but has to go further and find out whether the transactions entered in the books of original entry are correct or not.
More from this Section
- Receivables turnover
Receivables turnover is a measure of the liquidity of receivables during the period; computed by dividing net credit sales (net sales less credit sales) by average net receivables.
- Effects of Stock Dividends
How do stock dividends affect stockholders’ equity? They change the composition of stockholders’ equity, because they transfer to paid-in capital a portion...
- Petty cash fund
Petty cash fund is a cash fund that is used to pay relatively small amounts such as the payments for postage due, working lunches, or taxi fares.
- Audit Note Book
During the course of an audit, an auditor has to make several queries which might not have been satisfactorily answered, he might
- Treasury stock
Treasury stock is a corporation’s own stock that has been issued and subsequently reacquired from shareholders by the corporation but not retired.
- Unearned revenues
Companies record cash received before revenue is earned by increasing a liability account called unearned revenues.
- Purchase returns & Allowances
Purchase return means a return of goods from the buyer to the seller for a cash refund if the purchase was for cash or, credit if the sale was made on credit.