What Is Auditing

The Word Auditing is derived from the Latin "AUDIRE" which means to hear. Originally the accounting parties were required to attend before the auditor who heard their accounts. The enormous increase in trade and mechanical inventories led to the formation of joint Stock Companies and Corporations involving large sums of capital of members under the management of a few individuals . Under these conditions the advantages to be obtained from utilizing the services of auditors became apparent to the commercial public and great increase in the practice of auditing resulted. The provision of compulsory audit in case of Public Limited Companies gave a great impetus and incentive to the profession.

In different times the authors and professional accountants have given different definitions of auditing. Some definitions are given below:

1. "Auditing is the systematic examination and verification of the accounting records, vouchers and other financial and legal records and documents of a private public business organisation." (A.W. Holmes)

2. "Auditing may be defined as the process of examining and evaluating records intended to show financial condition and results of operations in order to provide a basis for an opinion concerning the reliability of the records." (Silvoso & Bouer)

3. "An audit may be said to be such an examination of the books, accounts and vouchers of a business as shall enable the auditor to satisfy himself whether the balance sheet is properly drawn up, so as to give a true an fair view of the state of the affairs of the business and that the profit & loss account gives a true and fair view of the profit or loss for the financial period, according to the best of information and the explanation given to the auditor and as shown by the books." (Walter W. Bigg)

4. "Auditing is concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statements and reports." (R.K. Mautz)

The recent years have seen many developments and improved techniques in the field of accounting & auditing. Keeping in view the developmental trends and also the introductory nature of the course, it is essential that definition should be easy, simple and convey the full sense of auditing. Such definition may be --"Auditing involves a critical analysis and examination of the transactions and records of a concern, the interpretation of the results and an expression of opinion concerning the records and financial statements of the client." It is unprejudiced critical appraisal that enables the auditor to bring out the errors, frauds and manipulations in the books of account. Thus an audit will involve:

1. A critical analysis and examination of the books and other relevant records for the purpose of;

2. determining that the financial statements fairly reflect the results of operations over a designed period of time and the financial position at the end of that period;

3. expressing a written responsible opinion as to the fairness of the financial statements in the light of their conformity with generally accepted principles of accounting consistently applied--the opinion of the auditor is expressed in a written report called "Audit Report."