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1SECTION-1(AUDITING)INTRODUCTIONTOAUDITINGSTRUCTURE:1.1Objectives1.2Introduction-anoverviewofauditing1.3Originandevolution1.4Definition1.5Salientfeatures1.6Scopeofauditing1.7Principlesofauditing1.8Objectsofaudit1.9Detectionandpreventionoffraud1.21.10Conceptof"trueandfairview"1.11Advantagesofaudit1.12.Limitationsofaudit1.13.Letussumup.1.14.Keywords.1.15.Bibliography21.1OBJECTIVESAfterstudyingthisunityouwillbeabletounderstanda.theevolutionofauditingb.theobjectsofauditingc.theadvantagesanddisadvantagesofauditingd.detectionandpreventionoffraudsanderrorse.limitationsofauditing1.2INTRODUCTION-ANOVERVIEWOFAUDITING:Economicdecisionsineverysocietymustbebasedupontheinformationavailableatthetimethedecisionismade.Forexample,thedecisionofabanktomakealoantoabusinessisbaseduponpreviousfinancialrelationshipswiththatbusiness,thefinancialconditionofthecompanyasreflectedbyitsfinancialstatementsandotherfactors.Ifdecisionsaretobeconsistentwiththeintentionofthedecisionmakers,theinformationusedinthedecisionprocessmustbereliable.Unreliableinformationcancauseinefficientuseofresourcestothedetrimentofthesocietyandtothedecisionmakersthemselves.Inthelendingdecisionexample,assumethatthebarflymakestheloanonthebasisofmisleadingfinancialstatementsandtheborrowerCompanyisultimatelyunabletorepay.Asaresultthebankhaslostboththeprincipalandtheinterest.Inaddition,anothercompanythatcouldhaveusedthefundseffectivelywasdeprivedofthemoney.Associetybecomemorecomplex,thereisanincreasedlikelihoodthatunreliableinformationwillbeprovidedtodecisionmakers.Thereareseveralreasonsforthis:remotenessofinformation,voluminousdataandtheexistenceofcomplexexchangetransactions3Asameansofovercomingtheproblemofunreliableinformation,thedecision-makermustdevelopamethodofassuringhimthattheinformationissufficientlyreliableforthesedecisions.Indoingthishemustweighthecostofobtainingmorereliableinformationagainsttheexpectedbenefits.Acommonwaytoobtainsuchreliableinformationistohavesometypeofverification(audit)performedbyindependentpersons.Theauditedinformationisthenusedinthedecisionmakingprocessontheassumptionthatitisreasonablycomplete,accurateandunbiased.1.3ORIGINANDEVOLUTIONThetermauditisderivedfromtheLatinterm‘audire,’whichmeanstohear.InearlydaysanauditorusedtolistentotheaccountsreadoverbyanaccountantinordertocheckthemAuditingisasoldasaccounting.ItwasinuseinallancientcountriessuchasMesopotamia,Greece,Egypt.Rome,U.K.andIndia.TheVedascontainreferencetoaccountsandauditing.ArthasashthrabyKautilyadetailedrulesforaccountingandauditingofpublicfinances.TheoriginalobjectiveofauditingwastodetectandpreventerrorsandfraudsAuditingevolvedandgrewrapidlyaftertheindustrialrevolutioninthe18thcenturyWiththegrowthofthejointstockcompaniestheownershipandmanagementbecameseparate.Theshareholderswhoweretheownersneededareportfromanindependentexpertontheaccountsofthecompanymanagedbytheboardofdirectorswhoweretheemployees.Theobjectiveofauditshiftedandauditwasexpectedtoascertainwhethertheaccountsweretrueandfairratherthandetectionoferrorsandfrauds.4InIndiathecompaniesAct1913madeauditofcompanyaccountscompulsoryWiththeincreaseinthesizeofthecompaniesandthevolumeoftransactionsthemainobjectiveofauditshiftedtoascertainingwhethertheaccountsweretrueandfairratherthantrueandcorrect.HencetheemphasiswasnotonarithmeticalaccuracybutonafairrepresentationofthefinancialeffortsThecompan...