What is primary objective in auditing?

What are the Objectives of an Audit?

Auditing is the systematic examination of the books of accounts and the other documents of the company, which is conducted with the main objective of knowing whether the company’s financial statement shows a true and fair view of the organization.

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• What are the Objectives of an Audit?
• 7 Types of Audit Objective
• Disadvantages
• Limitations of Audit Objectives
• Important Points to Note
• Recommended Articles
• What is primary objective of auditing Mcq?
• What are the primary and secondary objective of auditing?

The objective of an audit is to get reasonable assurance that the entity’s Financial Statements are free from Material Misstatement and to Provide a Report on the Financial Statements following the auditor’s findings. The audit is an independent and Systematic examination ofFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more Financial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more and a detailed investigation of Income and Expenses Reports, Accounting records such as Sales, purchases, etc.

Auditors should keep in mind audit objectives at the time of the Examination of financial statements and finalizing the Current market price of the Assets. They are variable basis types of Audit.

7 Types of Audit Objective

Type of objective changes as per Type of Audit. Below is the list of 7 main types of audits and their objectives:-

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Source: Audit Objectives (wallstreetmojo.com)

1. External – To check whether the Financial Statements prepared by the Management provide an accurate and fair view. Financial Statements prepared are as per applicableAccounting is recording, maintaining and reporting the financial affairs, depicting the precise financial position of the company. In contrast, auditing is the systematic examination of accounts books and other documents to check whether the statement shows the correct information or not.read more Accounting and AuditingAccounting is recording, maintaining and reporting the financial affairs, depicting the precise financial position of the company. In contrast, auditing is the systematic examination of accounts books and other documents to check whether the statement shows the correct information or not.read more Standards.
2. Internal – To Check Internal Control over financial reporting, compliance with Policies, compliance with Legal Aspects such as the applicability of the Companies Act;
3. Forensic  – Recognize fraud cases, Control and decrease instances of fraud through the application of suggestions and recommendations and internal Audit control in the entity,
4. Statutory – To check that an entity is following the rules and regulations of the Act under which it is registered, they have to appoint the statutory auditor to conductOne of the most common types of audits is the statutory or financial audit. Its main purpose is to gather all relevant information so that the auditor may provide an accurate and unbiased assessment of the company's financial position.read more the statutory auditOne of the most common types of audits is the statutory or financial audit. Its main purpose is to gather all relevant information so that the auditor may provide an accurate and unbiased assessment of the company's financial position.read more.
5. Financial – To get reasonable assurance that the financial statements are free of material misstatement.
6. Tax  – Proper maintenance of the Books of Accounts and other records of similar nature and to Maintain Proper records of Income and tax expenses and deductions of the TaxpayersA taxpayer is a person or a corporation who has to pay tax to the government based on their income, and in the technical sense, they are liable for, or subject to or obligated to pay tax to the government based on the country’s tax laws.read more.
7. Special Objective: Conducted as per Laws, and objectives vary as per laws.

If you want to learn more about Auditing, you may consider taking courses offered by Coursera –

1. Auditing I: Conceptual Foundations of Auditing
2. Auditing II: The Practice of Auditing

Advantages

• Board can check whether the principles and policies formulated and designed by them are implemented and followed by human resources or not.
• The management prepares financial Statements as per applicableFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.read more financial reportingFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.read more and auditing standards.
• The internal audit team can verify whether the Policy of Internal Audit Control is implemented or not designed by them.
• Recognize fraud Cases and decrease the % of fraud Cases through robust Internal audit control.
• Provide a better representation of Financial statements and give an accurate and fair view.
• Evaluation of capacity and efficiency of all level management of the entity;
• The audit helps rehabilitate sick units, reconstruction of entities,Merger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more mergersMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more, and amalgamationAmalgamation is the consolidation or combination of two or more companies, known as amalgamating companies, usually in the same or similar line of business, to produce a new legal entity, known as the amalgamated company, with the same shareholders, assets, and liabilities.read more among the companies.
• An external auditExternal Audit is defined as the audit of the financial records of the company in which independent auditors perform the task of examining validity of financial records of the company carefully in order to find out if there is any misstatement in the records due to fraud, error or embezzlement and then reporting the same to the stakeholders of the company.read more can be fruitful if the internal auditor is not reliable.
• The audit protects the interest of the Owner of the Entity.

Disadvantages

• An audit is very costly as the entity bears expenses like auditor’s remuneration, their living cost during the audit, including staff, and reimburse the official traveling expenses incurred during an audit.
• All the Data, Reports, and information relevant to the audit process are provided by the management.
• The auditor conducts the auditAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more on the sampling basis method. Due to this, some errors can’t be identified.
• Auditors have limited time to conduct the audit, and they need to submitAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company's financial statements.read more the audit reportAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company's financial statements.read more to the entity owner within a stipulated time.
• Internal audits do not publish to externals, and their results are only provided to management.
• The auditors can’t find all errors and frauds in the Books of accounts and accounting records.

Limitations of Audit Objectives

• It does not cover the audit of many vital aspects of an entity, such as Management efficiency, Finances, andBusiness ethics is the study, application, and implementation of various principles, policies, and standards in areas such as corporate governance, whistleblowing, corporate culture, and corporate social responsibility.read more Business ethicsBusiness ethics is the study, application, and implementation of various principles, policies, and standards in areas such as corporate governance, whistleblowing, corporate culture, and corporate social responsibility.read more.
• Clever manipulation and fraud in books of accounts and accounting records etc., are not disclosed by audit.
• An audit of Financial Statements does not provide explicit confirmation of additional information and explanations which the auditor takes for an audit opinion.
• The design of Audit techniques and formulation of anAn audit program is a course of action that businesses undertake to comply with regulations.read more Audit programAn audit program is a course of action that businesses undertake to comply with regulations.read more for the collection of evidence may not be the same as the nature of Business.
• Explanations, data, reports, and other information provided by the management may not be correct and may affect the auditor for an audit opinion.
• Some audits govern as per laws. In such audits, auditors are appointed by regulating authority, so auditors have no independence.
• Financial Statements are prepared on the basis of the number of judgments depending on such elements, which may vary.
• An audit of Books of Accounts may not be entirely reliable as the evidence provided by the management.
• Audited Financial statements may not provide an accurate and fair view and exact position if the auditor takes faulty judgment/ Decision/ Opinion.
• Auditor can’t be an expert in all the verticals of the entity; he should believe in the judgment of other experts like Valuers, Lawyers.
• Some entities can’t bear the expenses of the audit.

Important Points to Note

• The target of the audit objective is to form and express a true and fair view of financial statements, and the audit is performed to get assurance that Financial Statements are free from all material misstatements.
• To check that Financial Statements are prepared as per accounting guidelines and reporting frameworks (IFRS) by the management.
• Employees who will assist auditors and their staff should have sufficient knowledge of Audit:- How is an audit to be conducted, what are the documents to be asked, and what are the information, data, and reports to be provided to auditors.
• It may be changed as per the requirement of an audit.

Conclusion

The company should employ some experienced human resources for its internal auditInternal audit refers to the inspection conducted to assess and enhance the company's risk management efficacy, evaluate the different internal controls, and ensure that the company adheres to all the regulations. It helps the management and board of directors to identify and rectify the loopholes before the external audit.read more because if internal auditors find all the errors, fraud, etc., then investigation in such situations can be initiated at an internal level. The auditor should keep in mind all the relevant audit objectives during the audit because it helps them find accurate information, errors, and frauds. The auditor should express an audit opinion after considering audit objectives.

Recommended Articles

This has been a guide to what are the audit objectives. Here we discuss the Top 7 types of the audit with their objectives along with its advantages and disadvantages. You can learn more from the following articles –

• Audit Inventory
• Audit Report Qualified Opinion
• What are Audit Assertions?
• Audited Financial Statements