Complete Auditing Notes PDF file for RPSC JR Accountant and TRA Exam-2016

RPSC Junior Accountant Books PDF for second paper [ Auditing ]

Dear readers Audit part in the top scoring part in the RPSC JR Accountant and TRA Second Paper. It is so easy part to be gating high score about the examinations. RPSC Junior accountant and TRA exam is now held on 1st October 2016.
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The practice of auditing existed even in the Vedic period. Historical records show that Egyptians,
Greeks and Roman used to get this public account scrutinized by and independent official.
Kautaly in his book “arthshastra” has stated that “all undertakings depend on finance, hence
foremost attention should be paid to the treasury”.
Auditing as it exists today can be associated with the emerging a joint stock company during the
industrial revolution. The company’s act of 1956 gives regulations regarding the audit work.
RPSC Junior Accountant Books PDF for second paper [ Auditing ]

Meaning of Audit:

The word audit is derived from the Latin word “AUDIRE” which means to hear. Initially
auditor was a person appointed by the owners to check account whenever the suspected fraud, he
was to hear explanation given by the person responsible for financial transactions. Emergence of
joint stock companies changed the approach of auditing as ownership was pestered from
management. The emphasis now is clearly on the verification of accounting date with a view on
the reliability of accounting statement.

Objectives of Auditing.

Auditors are basically concerned with verifying whether the account exhibit true and fair view of
the business. The objectives of auditing depends upon the purpose of his appointment.
Primary Objective.
The primary objective of an auditor is to respect to the owners of his business expressing his
opinion whether account exhibits true and fair view of the state of affairs of the business. It

should be remembered that in case of a company, he reports to the shareholders who are the owners of the company and not tot the director. The auditor is also concerned with verifying how far the accounting system is successful in correctly recording transactions. He had to see whether accounts are prepared in accordance with recognized accounting policies and practices and as per statutory requirements. Secondary Objective: The following objectives are incidental to the main objective of auditing.

1. Detection and prevention of errors: errors are mistakes committed unintentionally because of ignorance, carelessness. Errors are of many types:

a. Errors of Omission: These are the errors which arise on account of transaction into being recorded in the books of accounts either wholly partially. If a transaction has been totally omitted it will not affect trial balance and hence it is more difficult to detect. On the other hand if a transaction is partially recorded, the trial balance will not agree and hence it can be easily detected.
b. Errors of Commission: When incorrect entries are made in the books of accounts either wholly, partially such errors are known as errors of commission. Eg: wrong entries, wrong Calculations, postings, carry forwards etc such errors can be located while verifying.
c. Compensating Errors: when two/more mistakes are committed which counter balances each other. Such an error is know an Compensating Error. Eg: if the amount is wrongly debited by Rs 100 less and Wrongly Credited by Rs 100 such a mistake is known as compensating error.
d. Error of Principle: These are the errors committed by not properly following the accounting principles. These arise mainly due to the lack of knowledge of accounting. Eg: Revenue expenditure may be treated as Capital Expenditure.
e. Clerical Errors; A clerical error is one which arises on account of ignorance, carelessness, negligence etc.
Location of Errors: It is not the duty of the auditor to identify the errors but in the process of verifying accounts, he may discover the errors in the accounts. The auditor should follow the following procedure in this regard.
  1. Check the trial balance.
  2. Compare list of debtors and creditors with the trial balance.
  3. Compare the names of account appearing in the ledger with the names of accounting in the trial balance.
  4. Check the totals and balances of all accounts and see that they have been properly shown in the trial balance.
  5. Check the posting of entries from various books into ledger.

2. Deduction and Prevention of Fraud: A fraud is an Error committed intentionally to deceive/ to mislead/ to conceal the truth/ the material fact. Frauds may be of 3 types.
a). Misappropriation of Cash: This is one of the majored frauds in any organisation it normally occurs in the cash department. This kind of fraud is either by showing more payments/ less receipt.
The cashier may show more expenses than what is actually incurred and misuse the extra cash. Eg: showing wages to dummy workers. Cash can also be misappropriated by showing less receipts

Eg: not recording cash sales. Not allowing discounts to customers. The cashier may also misappropriate the cash when it is received. Cash received from 1st customer is misused when the

2nd customer pays it is transferred to the 1st customer’s account. When the 3rd customer pays it goes forever. Such a fraud is known as “Teaming and Lading”. To prevent such frauds the auditor must check in detail all books and documents, vouchers, invoices etc.
b). Misappropriation of Goods: here records may be made for the goods not purchase not issued to production department, goods may be used for personal purpose. Such a fraud can be deducted by checking stock records and physical verification of goods.
c). Manipulation of Accounts: this is finalizing accounts with the intention of misleading others. This is also known as “WINDOWS DRESSING”. It is very difficult to locate because its usually committed by higher level management such as directors. The objective of WD may be to evade tax, to borrow money from bank, to increase the share price etc.
to conclude it cab be said that, it is not the main objective of the auditor to discover frauds and irregularities. He is not an insurance against frauds and errors. But if he finds anything of a suspicious nature, he should probel it to the full.

Complete Auditing Notes PDF file for RPSC JR Accountant and TRA Exam-2016 Complete Auditing Notes PDF file for RPSC JR Accountant and TRA Exam-2016 Reviewed by RpscGuru Team on 11:30 Rating: 5


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