The purpose of an audit is to provide an opinion on financial statements. To do so, the auditor reviews the financial statements to ensure that they are accurate and fair representations of the enterprise's financial situation and operating results.
The primary goal of auditing is to establish the accuracy and fairness of the results reported in the profit and loss account and the financial position shown in the balance sheet. Auditing objectives are divided into two categories, which are listed below:
1. Primary Objectives of Auditing
2. Subsidiary Objectives of Auditing
1. Primary Objectives of Auditing
The key objectives of the audit are the audit's most essential goals. The following are the details:
- Examining the internal control system.
- Verifying posting, casting, balancing, and other arithmetical accuracy of books of accounts.
- Verifying transaction legitimacy and validity.
- Ensure that the capital and revenue aspects of transactions are correctly distinguished.
- Checking to see if all of the legal criteria have been met.
- Proving the accuracy and fairness of the income statement's operating results and the balance sheet's financial condition.
- Confirming the existence of assets and obligations, as well as their value.
2. Subsidiary Objectives of Auditing
These are objectives that are set up to aid in the achievement of primary goals. The following are the details:
Error Detection and Prevention
Errors are mistakes made due to carelessness, negligence, a lack of information, or the absence of a vested interest. Errors can be made without or with a vested interest in the outcome. As a result, they must be thoroughly examined. Errors come in a variety of forms. Here are a few examples:
- Errors of principle
- Errors of omission
- Errors of commission
- Compensating errors
Fraud Detection and Prevention
Frauds are intentional errors committed with a financial stake in the direction of top executives. Management conducts frauds to defraud the taxman, demonstrate management's effectiveness, increase commissions, sell or maintain the market price of a stock, and so on. An auditor's primary responsibility is to detect fraud. The following are examples of such frauds:
- Taking money without permission.
- Misappropriation of goods is a crime that occurs when goods are taken without permission.
- Manipulation or falsification of financial records without any misappropriation.
Stock Undervaluation or Overvaluation
Typically, such frauds are performed by the company's top executives. As a result, the explanation offered to the auditor is similarly false. As a result, an auditor should use expertise, knowledge, and facts to detect such frauds.
Other Goals
- To provide information to the government's tax collection agency.
- To meet the requirements of the Companies Act.
- To have a moral impact.