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Introduction: Audit was originally confined to ascertaining whether the accounting party had properly accounted for all

receipts and payments on behalf of his principal, and was in fact merely a cash audit. Modern audit not only examine cash transactions, but also verify the purport to which the cash transactions relate.

Audit of financial statements is the process of examining the financial statements and the underlying records of the company in order to render an opinion as to whether the statements are fairly presented. Most commonly financial audits are performed on a company's request for the benefit of financial information users (i.e. internal and external). Auditors analyze and compare accounting reports and confirmation documents as well as verify conformity of a company's accounting with established standards and regulations (e.g. US GAAP, IFRS). Therefore, the main goal of an audit is to perform thorough evaluation of a company's financial records and reports and provide a company with improvement recommendations based on that evaluation. As we can see, accounting provides financial information to users of such information, and auditing is a means to ensure such information is reliable and comforts with established rules and regulations.

The main goal of accounting is to provide a company with clear, comprehensive, and reliable information about its economic activities and status of its assets and liabilities. This information is presented in the form of accounting reports like the balance sheet, income statement, statement of changes in equity (also calledshareholders' equity statement), and statement of cash flows (also called cash flow statement). By means of accounting reports it is possible to perform the following (list non-inclusive):

Understand and re-allocate internal resources of the company to ensure its financial stability Review profitability of the company's economic activities Understand the company's cash inflows and outflows Verify conformity of a company's economic activities to government regulations Internal users of accounting reports are managers, owners, and employees. External users of accounting reports are investors, creditors, and government.

Commencement of a New Audit Before commencing a new audit the auditor should collect necessary information and take certain steps in order to examine the accounts of a business concern. The following steps in this regard are taken which are as follows: 1. Appointment Confirmation The auditor must examine the terms and conditions of his appointment. It should be confirmed that the appointment was authorized by a competent authority and there is no reason whatsoever in rejecting this offer.

2. Legal Documents Study of memorandum of association and articles of association to be carried out in order to ascertain the powers of the company and that of its management. 3. Prospectus Issued During the Year The auditor must confirm that its contents are duly approved and authorized by the memorandum of association of the company. 4. Inventory Observation Various contracts made with other companies, in particular foreign companies, must be checked for their proper authorization by the memorandum of association and articles of association. It is also pertinent to mention that the auditor must point out to the clients that stock taking must be conducted under his watchfuleyes, especially in the case when goods are stored at distant branches of the company. 5. Nature off Business Nature of business plays an important role in planning of auditing procedures and their application. Knowledge of the nature of a business concern under audit can be acquired from the memorandum of association, partnership deeds etc. 6. System of Accounting The auditor must obtain the list of the books of accounts and records maintained by the business concern. He must also enquire about the system of internal control in the business concern. In addition to this, he must also ascertain whether it is a single entry or double entry system, and that what is the method adopted in preparing find accounts by the business concern. 7. Reliability of Internal Control The auditor must also enquire about the level of the system of internal control established in the business concern. The auditor must very carefully examine its validity so that it cannot only be trusted but can also be a measure of reliability of the work conducted. 8. Audit Program An audit program is prepared in the light of the above information and certain duties in this regard assigned and finally the audit of a company begins. 9. Instructions to the Client The auditor should ask his client to direct the staff of the company to prepare a schedule of debtors and creditors, list of investments, prepared and outstanding expenses etc. 10. Client Certificates The auditor can obtain certificates from the client about not only the confirmation but also the authenticity of accounts, debtors, creditors etc. In addition to this, the client can also issue certificates for the benefit of the auditor in context of stock valuation. 11. List of Employees/Officers

The auditor must acquire information about the employees and officers working in different departments of the company. The auditor must have adequate knowledge about their authority and responsibility in order to be able to prepare a quality report of the company at the end of the financial year. 12. Change of Auditors The auditor must ascertain the reasons, as to why the auditor was changed. He must compare the reasons of the retiring auditor with that given by the client. 13. Analytical Review The auditor can check the ratios and percentage for a number of years. He can examine the trend of various items in order to have knowledge of any unusual items. 14. Time Required The auditor can decide the time required to complete the audit work. He can increase or decrease the members of staff to do his work. The cost of audit can increase due to any extension made in the time period of audit work.