Dr.RANM ARTS AND SCIENCE COLLEGE�Affiliated to Bharathiar University , Accredited with “ B+” NAAC
Mrs.Christy Priyanka M.Com(CA)
Assistant Professor,
Department of Commerce (CA)
Course Name : Principles of Auditing
Welcome You All
Auditing is a system of check upon persons who, in the course of their work, handle receipts and expenditure of money belonging to others.It has been in practice since time immemorial.There is historical evidence suggesting that household accounts of early rulers were kept by at least two persons, independently of one another, to keep a check on mistakes and misappropriations.In the Mauryan, Greek and Roman empires, there was a fool-proof system of control over public revenue and expenditure..That explains the origin of the world “audit” derived from the lain audire, i.e., to hear.
Detection and prevention of errors:
According sot SAP-4, “Fraud and Error” issued by the ICAI, an error may be defined as any unintentional mistake or mis-description in the books of account or records whetherby way of – (a) mathematical or clerical mistakes in the records and data; (b) oversight or misinterpretation of facts; or (c) misapplication of accounting policies.An error is generally taken to be innocent and not deliberate.Where it appears to be willfully made,it assumes the character a fraud.
Errors maybe classifieds follows:
Clerical errors::
A clerical error may be committed in the course of – (a) recording a transaction in the books of original entry such as Purchases Book or Sales Book; (b) posting a transaction to the ledger: or (c) totaling or balancing of a ledger account.It may be an error of omission or commission.
Error of omission:
It occurs when a transaction is not recorded in the books of account, either wholly or partially.Where a transaction in altogether omitted from the record, the error may be difficult to detect.Because, as the transaction has not been posted to the ledger, it will not affect the agreement of trail balance.For example, if a credit purchaseis not entered in the Purchases Day Book, it will not be posted to the related ledger account, namely, on the debit side of the Purchase Account and on the credit side of the Supplier’s Account. The trial balance will not be affected by the omission.An error of this type can only be detected by an intensive checking of the Purchase Book and theStock Book.
Error of omission:
It may be committed either at the stage ofrecording atransaction in a book of original entry or while posting it to the ledger.Errors in totaling and balancing of accounts or in carrying forward totals to the trial balance, are also called errors of commission. The following are the examples of such errors
Errors of principle:
An error of principle occurs when the generally accepted principles of accounting are not observed while recording any transaction in the books of account.This may be due to inadequate understanding of the principles on the part of the recording clerks.But sometimes the overlooking of the principles may be with an intention to conceal the real state of affairs of the business by way of overstatement or understatement of profits or losses.
Compensating errors:
A compensating error results in compensating or blacking out, either wholly or partially, the effects of other errors.Thus, while apparently there may be little or no difference between the two sides of the trial balance, giving an impression that all or most of the business transactions have been properly recorded and posted, in reality there might be a number of errors lying hidden in the books of account.
Errors of duplication:
An error of duplication occurs when the same transaction is recordedtwice inthe books of original entry, and hence also posted twice in the ledger accounts.This may bee eitherdue to failure on the part of the recording clerks to distinctly mark the invoices and other vouchers after these have been entered in the books of original entry, or because of confusion due to invoices and vouchers being received in duplicate.
Thank you