Scope of Auditing

1. SCOPE OF AUDITING.

• The matters to be included in the scope of audit depends on circumstances of each case. However, normally the following matters should be included in the scope of audit 

• (1) An auditor has mainly to check that the transactions are correctly recorded in the books of accounts 

• (2) He has to verify that the transactions recorded in the books of accounts are properly authenticated and that they relate to activities of business.

                                                     

• (3) To satisfy himself about the correctness of transactions recorded, he is required to examine all the vouchers, statements, contracts, minute books and relevant correspondence that would help him in such examination 

• (4)He should also be satisfied that the transactions are properly and correctly posted to the relevant ledger accounts and that the ledger accounts are correctly totalled and that the balances are correctly carried forward 

• (5) All the particulars shown in the Balance Sheet should be vouched and verified and it should be properly and correctly valued 

• (6) He should satisfy himself that all incomes and expenses have been correctly allocated between capital and revenue.

• (7) He has also to see that the accounts have been drawn up in accordance with the legal requirements.

• It should be noted that an Auditor has not merely to see that the Balance Sheet and Profit and Loss Account are drawn up in accordance with entries made, but he has to further satisfy himself the such entries themselves are correctly made.

•  Another point to note is that it is not possible for the auditor to check each and every item. Hence, he has to resort to test checking for which he has mainly to depend on the system of internal check and control. Of course, if he finds any lacunae in internal control system, it becomes his duty to probe deep into the matter and to examine every transaction in detail.

•  Thirdly,he can rely upon the responsible officials of the business e.g. Where the quality of stock is so huge as to render it difficult or practically impossible for the auditor to physically verify them, he can rely upon the certificate of the responsible officials.

•  However, while auditing the accounts of a small concern, he should check each and every transaction in detail because one or two persons only in the writing of books of accounts and hence there are more chances of errors or frauds. On the other hand, when the business is carried on a large scale and the system of accounting is such that the work of one person is automatically checked by another person, there is no need to verify each and every transaction in detail.