Meaning of the auditing definition, Auditing

Meaning of the auditing definition

a) Orderly and efficient manner:

An organization which is run in an orderly and proficient manner is able to satisfy the requirements of its auditors, managers, shareholders, customers, suppliers and anyone else fascinated in the operations of the entity. It will be capable to satisfy the requirements of its production facilities. The outcomes of orderliness involve the timely production of information which is reliable; they also involve the cooperation of all parties concerned. An organization that is run in a disorderly and ineffective manner will soon deteriorate into chaos and would probably have to close down earlier or later. This is significant to the auditor in that where the organization is fine run he will expect consistent information timely received or given and he will receive the cooperation of the management, the staff and other third parties from whom he might seek representations. This decreases the amount of full work the auditor has to do.

b) Ensure adherence to management policy:

Every organization should have aims or objectives. For a company these are generally to be found in its Memorandum and Articles of Association. The management is charged with the duty of designing policies which will allow the organization's objectives to be attained. Therefore the management should set policies which have to be obeyed or adhered to, to attain the objectives of the organization. To do this, management specifies broad policies like: the industry in which to operate, the products to generate, where the factory is to be situated and which market its products are intended at. Management also sets detailed policies like the number of accounts clerks to be used and their remuneration. For the auditor adherence to management policy places the entire organization in perspective. Only when the auditor understands the organization's objectives and the policies accepted by the management to achieve those objectives will he be capable to establish whether measured against those objectives, the accounts give an accurate and fair view. The policies accepted particularly in determining the values attached to assets and liabilities and the amounts to be charged as revenue or expenditure in the gain and loss account should be in accordance with usually accepted accounting principles.

c) Safeguard the assets:

The assets are the resources of the organizations. They should thus be protected from loss. This protection can be completed directly that is physically locking the assets under lock and key and trying to avoid their deterioration or safeguarding can be completed indirectly via records and documentation. Safeguarding the assets means restricting access to the assets. Indirect restriction means that access to the assets must be via authorised documentation. For the auditor, the accounts can’t give a true and fair view when he cannot verify that the assets concerned really exist and have the value attributed to them.

d) Secure as far as possible the completeness and accuracy of the records:

It is hard to control any business unless you have got consistent and precise records. Business decisions can’t be made unless all the transactions have been entirely and precisely processed and recorded. The Companies Act needs correct records being kept for all the company's transactions and activities. It further needs that such records must be such that accounts which give an accurate and fair view can be extracted from them. Hence, the organization should keep reliable records and thus the management should take the proper steps to make sure that it secures as far as possible the wholeness and precision of the records. For an auditor, his interests in this element of internal control occurs out of his statutory duty to examine and report whether appropriate books of accounts have been kept, whether the accounts he is inspecting are in agreement with those books, and whether the Companies Act needs have been obeyed with in all material respects.  He thus has a direct interest in total and precise records.

Posted Date: 12/3/2012 5:19:08 AM | Location : United States

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