Salesian

Polytech
nic
Universi Audit 2
ty
Alvarado Romero Zuly
Stephanía

Group 1

Ing.
Com.
Luis 2024-
Ernesto 2025
Alarcón
 Cabezas

Homework
PLEASE READ BOTH: THE TEXT BOOK AND HANDOUT FROM INDIA
REFERENCES, WHICH ARE ATTACHED TO THIS SECTION AND IN A
WORD, FILE PROCEED TO RESUME BOTH OF THEM IN NO MORE THAN
TWO PAGES FOR EACH BOOK.

IS NOT NECCESARY TO READ THE WHOLE TWO TEXTS,

NEVERTHELESS PLEASE TRY TO UNDERSTAND THE ESSENCE OF THE
CONTENTS.

Detection of material frauds and errors as an incidental objective of

independent financial auditing flows from the main objective of determining
whether or not the financial statements give a true and fair view. As the
Statement on auditing Practices issued by the Institute of Chartered
Accountants of India states, an auditor should bear in mind the possibility of
the existence of frauds or errors in the accounts under audit since they may
cause the financial position to be mis-stated. Fraud refers to intentional
misrepresentation of financial information with the intention to deceive.
Frauds can take place in the form of manipulation of accounts,
misappropriation of cash and misappropriation of goods. It is of great
importance for the auditor to detect any frauds, and prevent their
recurrence. Errors refer to unintentional mistake in the financial information
arising on account of ignorance of accounting principles i.e. principle errors,
or error arising out of negligence of accounting staff i.e. Clerical errors.

When we speak of the objective, we rationalize the thinking process to

formulate a set of attainable goals, with reference to the circumstances,
feasibility and constraints. In money matters, frauds and errors are common
place of occurrence. Apart from this, the statements of account have their
own purpose and use of portraying the financial state of affairs. The
objective of audit, naturally, should be to see that what the statements of
account convey is true and not misleading and that such errors and frauds
do not exists as to distort what the accounts should really convey.

However, you should not infer that the detection of errors and frauds is no
longer an audit objective; it is indeed an audit objective because statements
of account drawn up from books containing serious mistakes and fraudulent
entries cannot be considered as a true and fair statement. To establish
whether the financial statement show a true and fair state of affairs, the
auditors must carry out a process of examination and verification and, if
errors and frauds exist they would come to his notice in the ordinary course
of checking. But detection of errors of frauds is not the primary aim of audit;
the primary aim is the establishment of a degree of reliability of the annual
statements of account.

The term fraud means the willful misrepresentation made with an intention
of deceiving others. It is a deliberate mistake committed in the accounts with
a view to get personal gain. In accounting, fraud means two things,
Defalcation involving misappropriation of either cash or goods; and
Fraudulent manipulation of accounts not involving defalcation.

At this stage, it must be clear that the objective of an audit of financial

statements is to enable an auditor to express an opinion on such financial
statements. In fact, it is the auditor’s opinion which helps determination of
the true and fair view of the financial position and operating results of an
enterprise. It is very significant to note that the AAS-2 makes it a subtle point
that such an opinion expresses by the auditor is neither an assurance as to
the future viability of the enterprise nor the efficiency or effectiveness with
which management has conducted affairs of the enterprise. Further, the
process of auditing is such that it suffers from certain inherent limitations,
i.e., the limitation which cannot be overcome irrespective of the nature and
extent of an audit procedure. It is very important to understand these
inherent limitations of an audit since understanding of the same would only
provide clarity as to the The fact that audit is compulsory by law, in certain
cases by itself should show that there must be some positive utility in it. The
chief utility of audit lies in reliable financial statement on the basis of which
the state of affairs may be easy to understand. Apart from this abvious
utility, there are other advantage of audit.

So far we have discussed the question of formal qualifications of an auditor.

But it is not enough to realise what an auditor should be. He is concerned
with the reporting on financial matters of business and other institutions.
Financial matters inherently are to be set with the problems of human
fallibility; errors and frauds are frequent. The qualities required, according to
Dicksee, are tact, caution, firmness, good temper, integrity, discretion,
industry, judgment, patience, clear headedness and reliability.

The auditor should be equipped not only with a sufficient knowledge of the
way in which business generally is conducted but also with an understanding
of the special features peculiar to a particular business whose accounts are
under audit. AAS-8 on ‘Audit Planning’ emphasises that an auditor should
have adequate knowledge of the client’s business. The auditor, who holds a
position of trust, must have the basic human qualities apart from the
technical requirement of professional training and education.

Auditing And Assurance

The IAASB functions as an independent standard-setting body under the

auspices of IFAC. The objective of the IAASB is to serve the public interest by
setting high quality auditing and assurance standards and by facilitating the
convergence of international and national standards, thereby enhancing the
quality and uniformity of practice throughout the world and strengthening
public confidence in the global auditing and assurance profession.

According to General Guidelines on Internal Auditing issued by the ICAI,

“Auditing is defined as a systematic and independent examination of data,
statements, records, operations and performances (financial or otherwise) of
an enterprise for a stated purpose. In any auditing situation, the auditor
perceives and recognises the propositions before him for examination,
collects evidence, evaluates the same and on this basis formulates his
judgement which is communicated through his audit report.”.

The person conducting audit is known as the auditor; he makes a report to

the person appointing him after due examination of the accounting records
and the accounting statement in the form of an opinion on the financial
statements. The opinion that he is called upon to express is whether the
financial statement reflect a true and fair view. Auditing, especially of
companies and for public purposes has become the preserve of persons
having recognised professional training and qualification. In India, under the
authority of the Companies Act, 1956, only Chartered Accountants, are
professionally qualified for the audit of the accounts of companies. Students
may note that the provision relating to restricted state auditors was a
transitory provision and has no relevance now. Chartered Accountants are in
a position to undertake auditing of almost any accounting aspect, unlike cost
accountants whose sphere has been restricted to audit of the cost
accounting records and statements.

Qualities of an Auditor

So far we have discussed the question of formal qualifications of an auditor.

But it is not enough to realise what an auditor should be. He is concerned
with the reporting on financial matters of business and other institutions.
Financial matters, inherently are to be set with the problems of human
fallibility; errors and frauds are frequent. The qualities required, according to
Dicksee, are tact, caution, firmness, good temper, integrity, discretion,
industry, judgement, patience, clear headedness and reliability. In short, all
those personal qualities that go to make a good businessman contribute to
the making of a good auditor. In addition, he must have the shine of culture
for attaining a great height. He must have the highest degree of integrity
backed by adequate independence. In fact, AAS-1 mentions integrity,
objectivity and independence as one of the basic principles.
When we speak of the objective, we rationalise the thinking process to
formulate a set of attainable goals, with reference to the circumstances,
feasibility and constraints. In money matters, frauds and errors are common
place of occurrence. Apart from this, the statements of account have their
own purpose and use of portraying the financial state of affairs. The
objective of audit, naturally, should be to see that what the statements of
account convey is true and not misleading and that such errors and frauds
do not exist as to distort what the accounts really should convey.

Accounting is a device for collecting and presenting useful information in

financial terms about a business enterprise. It should as well be recognised
that accounting data may contain errors for a variety of reasons, and those
who rely on accounting data frequently have no way of determining for
themselves the reliability of data presented. Even today the human element
is the most significant element for recording and processing the accounting
data. Human beings as they are, are always open to personal failures and
allurement. The audit objective, in the past was, primarily concerned with
the detection of errors and frauds and now, though the general audit
engagement do not specifically require their detection, they do not rule them
out and in fact stipulate their detection on the premise that no statements of
account can be considered true and fair if substantial errors and frauds
remain to distort the picture. Another presumption about errors and frauds
which has wide recognition, is that the audit techniques and processes, if
carried on conscientiously would bring to light errors and frauds even though
the examination was not specifically directed to reveal them.

Conclusion
In conclusion, auditing and assurange play vital roles in ensuring the
integrity and transparency of financial information within enterprises. The
International Auditing and Assurance Standards Boards (IAASB), operating
under the umbrella of IFAC, strives to uphold the public interest by setting
rigorous auditing and assurance standards. These standards not only
enhance the quality and uniformity of auditing practices worldwide but also
foster public confidence in the global auditing profession.

The objective of auditing is to ensure that financial statements accurately

reflect the financial state of affairs of an entity and are not misleading to
stakeholders. While the detection of errors and frauds has historically been a
primary focus of audits, modern audit engagements acknowledge the
importance of detecting and preventing such occurrences to uphold the
integrity of financial reporting.

Bibliographic references
https://avac.ups.edu.ec/presencial64/mod/resource/view.php?id=142042

https://avac.ups.edu.ec/presencial64/mod/resource/view.php?id=142044