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What is Auditing? || Definition of Auditing || What does Audit mean?

Auditing is defined as a systematic and independent examination of data, statements, records,
operations and performances (financial or otherwise) of an enterprise irrespective of its size, with a view to expressing an opinion thereon. In auditing, the auditor perceives and recognizes the propositions
for examination, collects evidence, evaluates the same and on this basis
formulates his judgment which is communicated through his audit report.

The nature of the propositions which an auditor is called upon to review varies, case to case. Thus an
auditor may review the financial statements of an enterprise to ascertain whether they
reflect a true and fair view of its state of affairs and of its working results. In another
situation, he may analyze the operations of an enterprise to appraise their cost effectiveness
and in still another, he may seek evidence to review the managerial
performances in an enterprise. In yet another type of audit, the auditor may examine
whether the transactions of an enterprise have been executed within the framework of
certain standards of financial propriety. However, the variations in the propositions do not
change the basic philosophy of auditing, though the process of collection and evaluation
of evidence and that of formulating a judgment thereon may have to be suitably modified.
According to SA-200 on “Basic Principles Governing an Audit”, “An audit is independent
examination of financial information of any entity, whether profit oriented or not, and
irrespective of its size or legal form, when such an examination is conducted with a view
to expressing an opinion thereon.”


The person conducting this process should perform his work with knowledge of the use of the accounting statements discussed above and should take particular care to ensure that nothing contained in the statements will ordinarily
mislead anybody. This he can do honestly by satisfying himself that :
(i) the accounts have been drawn up with reference to entries in the books of account;
(ii) the entries in the books of account are adequately supported by underlying papers and
documents and by other evidence;
(iii) none of the entries in the books of accounts has been omitted in the process of
compilation and nothing which is not in the books of account has found place in the
statements;
(iv) the information conveyed by the statements is clear and unambiguous;
(v) the financial statement amounts are properly classified, described and disclosed in
conformity with accounting standards; and
(vi) the statement of accounts taken as an integrated whole, present a true and fair picture
of the operational results and of the assets and liabilities.

The aforesaid definition is very authoritative. It makes clear that the basic objective of
auditing, i.e., expression of opinion on financial statements does not change with
reference to nature, size or form of an entity.

The main purpose of Standards by IAASB and IFAC is to establish a worldwide common platform to ensure and measure Internal Controls.

The definition given in SA-200 is restrictive since it covers financial information aspect only. However, the scope of auditing is not restricted to financial information only but, today, it extends to variety of non-financial
areas as well. That is how various expressions like marketing audit, personnel audit,
efficiency audit, production audit, etc. came into existence.