Internal Control Audit- Assignment

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Institute of Business Administration
Jahangirnagar University

BBA Programme 27thBatch
Taxation and Auditing
Lecture Handout - 1
(Covering Class 1 and 2)

Course Teacher:
Shish Haider Chowdhury
Mobile: +880 18 1922 5594

06 April 2020

1.Audit, Auditing

The word ‘audit’ has been defined by many distinguished authors and every one of them has attempted
to highlight one aspect or the other. Definitions of the word ‘audit’ given by authorities on the subject
are as follows:

An audit is the independent examination of financial statements or related information of an entity,
whether profit oriented or not, and irrespective of its size, or legal form, when such an examination is
connected with a view to expressing an opinion thereon.”
[International Standard of Auditing 1]

An audit is such an examination of the books, accounts and vouchers of business, as will enable the
auditor to satisfy himself that the Balance Sheet is properly drawn up, so as to give a true and fair view
of the state of the affairs of the business and whether the Profit and Loss Account gives a true and fair
view of the profit or loss for financial period, according to the best of his information and explanations
given to him and as shown by the books; and if not, in what respects he is not satisfied”
[Spicer and Pegler]

An audit is an examination of accounting records undertaken with a view to establishing whether they
correctly and completely reflect the transactions to which they purport to relate. In some instance it
may be necessary to ascertain whether the transactions themselves are supported by proper authority.

[L. R. Dicksee]
An audit is an examination of such records to establish their reliability and reliability of statements
drawn from them.
[A.W. Hanson]
Auditing is connected with the verification of accounting data with determining the accuracy and
reliability of accounting statements and reports.”
[R. K. Mautz]
Auditing is a systematic examination of the books and records of business or other organizations in
order to ascertain or verify and to report upon, the facts regarding the financial operations and the
results thereof.”

It can be concluded that, the audit means critical and intelligent examination of facts- financial or
otherwise to give in the form of certificate or report an attestation, an expert opinion or expert advice.

2.Origin of Audit

The word ‘audit’ is derived from the Latin word “audire” which means to hear. In the good old days
whenever the proprietors of a concern suspected a fraud, certain people were appointed to hear verbal
evidence of transactions of barter etc., and to judge the facts. They ‘heard’ the points of view of those
who maintained the accounts. Lucas Pacilio who is commonly considered as the father of double entry
book-keeping wrote his treatise on the double entry book-keeping and described the duties and
responsibilities of an auditor in it. The roots of ‘modern audit’ lie deep in the birth of ‘Industrial
Revolution’, which brought large-scale production in its wake. The rapid growth of banking, transport &
insurance development, use of mechanical appliances and computers in business concerns and gigantic

growth of joint stock companies have resulted in the growing importance of audit. The need of audit
became imminent when the management and ownership of business was divided among different
groups of people. The investor would naturally like to see that his investment is safe. For this purpose,
the accountants must be checked and audited, especially in case of joint stock companies. As it is not
possible for shareholders to check the accounts of the company they appoint a person who would audit
the accounts on their behalf. Formerly such a person used to be one of the shareholders who might not
technical knowledge of accountancy. To have an effective check, the custom to appoint professional
accountant began to develop.
3.Advantages of audit

1.Errors and frauds are locatedat an early date and in future no attempt is made to commit such
frauds or one is rather careful not to commit an error or fraud as accounts are subject to regular
2.The auditing of accounts keeps the accounts departmentregular and vigilantas they know that
the auditors would complain against them if the account is not prepared up-to date or there is
any irregularity.
3.Fund can beborrowedeasily on the basis of previous audited Balance Sheet.
4.If the accounts have been prepared on a uniform basis, accounts of one year can becompared
with other years and if there is any discrepancy, the cause may be enquired into.
5.In case of any accident/mishap/untoward event, theinsurancecompany may settle the claim on
the basis of audited accounts of the previous years.
4.What is accounting

Accounting means the compilation of accounts in such a way that one is in a position to know the state
of affairs of the business. It is a comprehensive information system begins with recognizing the event of
transaction, ends with analysis and interpretation. The man who performs this work is called an
accountant. His work is to interpret and review the accounts and draw conclusions with a view to guide
the management in chalking out the future policy of business.
4.1Necessity, importance & role of accounting

1.To determine profit or loss:the most principle aim of a business organization is to achieve
profit. If the transactions of a business organization are written and maintained in the books of
accounts properly, it can be easy to determine the amount profit achieved within a certain
2.To determine the financial condition:The financial condition of a business organization can be
known by preparing the balance sheet at the end of the year only through preserving the
3.Comparative analysis:If the accounts are preserved in right way, the improvement or other
condition of business can be recognized by doing comparative analysis of one year’s income-
expense with that of another year.
4.To take care of the assets and repayment of debt:To know the amount of debt and to repay it
in time etc., it is necessary to keep any kinds of accounts of related to debt.
5.To determine the income tax:The income tax of a business organization is determined on the
basis of its income. So it is important to prepare a reliable Income statement after preserving
the accounts in a scientific way.
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