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Introduction to Auditing

Institute of Lifelong Learning, University of Delhi

Discipline Courses-I

Semester-I

Paper: I

Unit-VIII

Lesson: Introduction to Auditing

Lesson Developer: Rati Dhillon

College/Department: Bharati College, University of Delhi

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Introduction to Auditing

Institute of Lifelong Learning, University of Delhi 2

Lesson: Introduction to Auditing

Table of Contents

1: Learning Outcomes

2: Introduction

3: Concept of Auditing

4: Advantages and Limitations of Auditing

5: Objectives of Auditing

6: Errors and Frauds

7: Auditor’s Position vis-à-vis Errors and Frauds

8: Classification of Audit

Summary

Exercises

Glossary

References

1. Learning Outcomes:

After you have read this lesson, you should be able to:

 understand the meaning and objectives of auditing,

 appreciate the need and importance of auditing,

 differentiate between an error and fraud,

 explain different types of errors and frauds,

 comprehend different types of audit and their relevance in different

situations or for different organizations.

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Introduction to Auditing

Institute of Lifelong Learning, University of Delhi 3

2. Introduction:

In earlier times businesses were not complex as they are today. Most of the businesses

were managed and run by a single person as transactions were less, people involved were

less and accounts were not very elaborate thus there were very bleak chances of errors.

Gradually with the growth and evolution of business, the face of industry changed; size of

business increased, number of transactions increased. The increase in size and scale of

business operations mandated the increase in the number of people managing the

operations of business. With division of labour, different people were made to handle

different tasks. Departments based on functions were created to organize the business

activities to ensuring smooth and efficient performance of duties. Accounting emerged as a

separate department or as a separate unit in the finance department in many of the

organizations. Certain people with specific skills were appointed to maintain accounts and

ensure their accuracy. These persons, so appointed for the task of recording and ensuring

accuracy in the accounts, used to listen to all the transactions by the owners of the

organization and recorded and verified them. That is how the word ‘audit’ originated from

the Latin word ‘audire’, which essentially meant ‘to hear’. Slowly and steadily the scope of

audit increased many fold and it has taken shape of a professional field today. It is said that

accounting begins where book keeping ends, and auditing begins where accounting ends.

While it is necessary to place trust in the managers and employees of the business, auditing

is an attempt to verify the records and financial statements so that others may also place

trust in the authenticity of such statements.

Figure 1: Audit

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