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Monday, 19 September 2011

Explain the functions of audit or auditing

FUNCTIONS OF AUDIT :-
Following are the important functions of audit :

1. Study The Accounting System :-
It is the basic function of auditing. In order to determine the nature, timing and extent of the audit procedures auditor should study the accounting system.

2. Internal Control System :-
It is a process which determines that management policies are carried out according the accounting principles. This system is very useful to safeguard the interest of the enterprise. The auditor determines the effectiveness of this system.

3. Vouching :-
This function is essential to determine the accuracy of accounting record. Through audit those documents can be checked which support and prove the business transactions. All entries in books of accounts are made on the basis of relevant vouchers.

4. Verification Of Assets :-
It is the function of auditing that it should verify the assets of the business. It is concerned with the determination of value, ownership and possession of business asset. The auditor can check the existence of asset.

5. Legal Requirement :-
It is the function of auditing to verify that statements are prepared under the legal requirements or not. There are various laws like company and income tax ordinance which are introduced by the govt.

6. Liabilities Verification :-
The liabilities of the business can be verified from the books of accounts. The auditor can write a letter to the creditors for the verification of liabilities. The auditor must receive the certificate from the management in this regard.

7. Capital And Revenue :-
Auditing should make difference between capital and revenue items. The capital items are compared to note the financial position of the business. The revenue items are compared to determine the income. The income and expenses related to many years can be divided in current and coming year.

8. Valuation Of Liabilities :-
Through auditing value of liabilities can be checked from the books of accounts and other papers. The auditor can also confirm the value from outside sources. The value of liabilities is given in the balance sheet by the management but it is the function of auditing which confirms this value.

9. Valuation Of Assets :-
The management gives the value of assets and auditor can apply the accounting principles to assess the value of assets. The auditor critically examines and takes help from the expert.

10. Reporting :-
Auditing important function is reporting. Auditor is an independent person and it is his duty to submit his report in writing. If he is satisfied he can present clean report otherwise he can give qualified report.

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