Introduction To Auditing

1.INTRODUCTION
     

1.             Although the system of checking the accounts and ascertaining their correctness is an ancient one, its present-day growth was achieved only during last half a century. it is but natural that when the owner of a business does not write the accounts himself and has to depend on other persons, he will have to get the accounts checked or audited. In the early stage of industrial development, the required capital was mainly provided by a sole trader himself and he was also keeping the accounts himself or was able to keep a check over the accounts kept by another person Similar position prevailed in case of partnership firms as well.

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1.  However, it is now accepted that the present day growth and development of Auditing is mainly the outcome of development of Joint Stock Companies. The increase in business operations necessitated more funds than what an individual or a small group of persons could contribute. The result was the company form of organisation, where the capital is provided by a large number of persons called "Shareholders". Under the company form of organisation it is not possible for all shareholders to participate directly in the management and hence the management is entrusted to the elected representatives of the shareholders, called the directors The management of the company is delegated to a board of directors and thus it resulted into divorce of ownership from management. The Board of Directors present before the shareholder profit and Loss Account and Balance Sheer of the company every year. It became necessary. therefore, to ascertain whether the Profit and Loss Account gives true and fair view of the profit or loss of the financial period and that the balance Sheet gives true and fair picture of the state of affairs of the company, at the close of the financial year. Initially, shareholders themselves checked the accounts of the company.

1. As a result, the services of an auditor began to be utilised. The auditing, since then, has become an important part of professional practice. Now-a-days, in any large-scale business where the number of transactions to be recorded is voluminous, the businessman cannot keep the records and accountant himself. The growth of business makes it rather impossible for the owner of the business to prepare and consolidate the accounts of entire business. For recording day-to-day transactions, one has to employ an accountant who writes the financial transactions and compiles Profit and Loss Account and the Balance Sheet. Whether such Profit and Loss Account and the Balance Sheet show true and fair earnings and financial position of the business still remains to be ascertained and for this purpose the practice of appointing professional auditors developed.