ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Business and Employment»
  • Accounting

Objectives of audit and advantages of Auditing

Updated on September 30, 2016

Objectives and advantages of Audit

The objectives of an audit may broadly be classified as
1. Primary Objectives
2. Secondary objectives.

Primary Objectives:

The main purpose of audit is to judge the reliability of the financial statements and the supporting accounting records for a particular financial period.  The Companies Act, 1956 requires that the auditor of a company has to state whether in his opinion the accounts disclose a true and fair view of the state of company's affairs, profit and Loss Account and Balance Sheet of the state of affairs of a business, the auditor carries out a process of examination and verification of books of accounts and relevant documents.  Such an examination will enable the auditor to report to his client on the financial condition and working results of the organization.  While carrying out the examination of the various books of accounts, relevant documents and evidences, the auditor may came across certain errors and frauds.  Despite such a possibility the detecting of errors and frauds is an incidental object.  However, laymen have always associated the detection of errors and frauds as the main function of an auditor which is not true. At the same time audit also discloses how far the accounting system adopted in the organisation is adequate and appropriate in recording the various transactions as well as the weakness of these systems.

Secondary Objectives:

As stated above, an auditor has to examine the books of accounts and the relevant documents in order to report on the financial condition of the business.  In the process of such an investigation of accounts certain errors and frauds may be detected.  These are discussed under the following two heads:

A.  Detection and Prevention of Errors
B.  Detection and Prevention of Frauds

Detection and prevention of Errors:  Various types of errors are mentioned below:

1. Clerical Errors: Such an error arises on account of wrong posting.  For example, an amount received from Thomas is credited to Sunny.  Though there is wrong posting still the trial balance will agree.  Clerical errors are of three types as follows:

i)   Errors of Commission: There errors are caused due to wrong posting either wholly or partially of the amount in the books of original entry or ledger accounts or wrong calculations, wrong totaling, wrong balancing, and wrong casting of subsidiary books.  For example Rs. 500 is paid to a vendor and the same is recorded in the cash book.  While posting to the ledger, the Vendor's account is debited by Rs. 500.  It may be due to carelessness of the clerk.  Most of the errors of commission are reflected in the trial balance and these can be discovered by routine checking of the books.

ii)   Errors of Omission: Such errors arise when the transactions are not recorded in the books of original entry or posted to the ledger.  For example, sales are note recorded in the sales book or omission to enter invoices in the purchase book.  For example Rs. 200 is paid to a vendor.  The entry in the cash book is made on the credit side but posting to the vendor side is omitted.  Errors due to entire omission will not affect the trial balance whereas errors due to partial omission will affect the trial balance and can be detected.

iii)   Compensating Errors:  When two or more errors are committed in such a way that the result of these errors on the debits and credits is nil, they are referred to as a compensating errors. For example, Anil's account which was to be debited for Rs. 500 was credited for Rs. 500 and similarly, Sunil's account which was to be credited for Rs. 500 was debited for Rs.500.  These two mistakes will nullify the effect of each other.  Both the sides of the trial balance are equally affected.  As such, these errors are difficult to locate unless detailed investigation is undertaken.

2.  Errors of Principle: Such errors are committed when some fundamental principle of accounting is not properly observed in recording transaction.  For example, if there is incorrect allocation of expenditure or receipt between capital and revenue or when closing stock is over-valued.  Though trial balance will not disagree, the Profit and Loss Account may be very much affected.  Sometimes, such errors are committed deliberately to falsify the accounts or unintentionally due to lack of knowledge or sound principles of accounting.  Thus, a thorough examination is to be done to locate such errors.

Detection and Prevention of Frauds:
Frauds are always committed deliberately and intentionally to defraud the proprietors of the organization.  If the frauds remain undetected, they may affect the opinion of the auditor on the financial condition and the working results of the organization.  It is, therefore, necessary that the auditor should exercise utmost care to detect such frauds. 


    0 of 8192 characters used
    Post Comment

    • drbj profile image

      drbj and sherry 7 years ago from south Florida

      Yes, audits are a great way to learn about and prevent any potential errors. But be careful, youcanwin, about using the word "audit" too freely from now till tax ime. It's a sensitive subject with unfortunately a negative connotation.

    • Dr. Cherie profile image

      Cherie Santasiero PhD 7 years ago from Hamburg, NY

      Hi there,

      I have noticed more errors on the wrong posting. It is often simple laziness, the unwillingness to carefully check what one is doing. I am copying this for my employees. Thanks!

      Dr. Cherie

    • profile image

      Pro: Abid Khattak 7 years ago

      that is very much nice because i understand it and that is helpful for me being a professor

    • youcanwin profile image

      youcanwin 7 years ago

      Thanks all for your visit and comment

    • billrobinson profile image

      billrobinson 6 years ago from CA, USA

      Thank you for all the info.

    • profile image

      Awulu F. A 6 years ago

      I hav learnt enough frm this. A good material, I coment!

    • profile image

      suhail 5 years ago


      for all

    • profile image

      Sai 5 years ago

      Thanks a lot...

    • profile image

      mtonga-zambia 5 years ago

      what are the differences between the audit objectives and audit program?

    • profile image

      Muhammad Faisal Nazeer 5 years ago


      Dear Sir,

    • profile image

      shereen khanam 5 years ago

      its superb

      thankx a lot for such a n info

    • profile image

      kayode 5 years ago

      thanks for the information at all time

    • profile image

      sajid iqbal 5 years ago

      thank you sir for information.

    • profile image

      sathya 5 years ago

      this notes are very useful to my exam preparetion thaks to all

    • profile image

      umer 5 years ago

      its very short please change it into long information.

    • profile image

      marzipurian 5 years ago

      thanks very much

    • profile image

      friya shah 5 years ago

      not good. there is no much headings.

    • profile image

      Niazi 5 years ago

      tanks........helpful for me

    • profile image

      Richmond 5 years ago

      I love this piece of note. It has really help me to do my auditing assignments

    • profile image

      Rogers 5 years ago

      I love this piece of note. It has really help me to do my auditing assignments

    • profile image

      Nagaraj 5 years ago

      Im a degree student.thanks for all.

    • profile image

      Farrukh 5 years ago

      Nice article... But u didn0t briefly discuss the detection of fraud

    • profile image

      poonam solanki 5 years ago

      thnku thnku a lot yaaar ......

      lubz u for this .. awesome hai .. exm me help ho gayi ji humari .... thnx a ton :D

    • profile image

      prof yogesh soni oxford 5 years ago

      gud notes need more evaluvate

    • profile image

      ashwini 5 years ago

      thanks for information

    • profile image

      Prof. Kashif ch. 5 years ago

      this topic needs a comprehnsive discussion that is unluckly not mentioned over here. proper examples are required to clear the mind of reader.

    • profile image

      obinna victor 5 years ago


    • profile image

      Rakib 5 years ago


    • profile image

      Angel Cbe dom 5 years ago

      Thanks a lot! It's helpful for me in doing my assignment! Big up.

    • profile image

      mahesmani 5 years ago

      thanks for information.

    • profile image

      sohag das 5 years ago

      good content, helped me a lot in doing my clg project.

      Thank You..

    • profile image

      saira ali 5 years ago

      this is very clear and nice explanation .

    • profile image

      IMAN MBWAMBO. 5 years ago


    • profile image

      naila 5 years ago

      v good is help us for the preparation of annual examz

    • profile image

      Tomeselmrot 5 years ago

      generic drug minocycline vs minocin

      Steroid use: Balancing the potential for loss as well as positive aspects - Are COX-2 medicines risk-free to suit your needs? Interviews using a Mayonnaise Clinic expert 1 . Joint replacement: Surgery could ease soreness

      Related Posts - evista, without having health professional prescribed substance,

      depo provera faq can strattera hurt prostate

    • profile image

      Tomeselmrot 5 years ago

      weight loss drugs and phenter

      Botox injections are additionally employed for the actual improvement with the skin internal organs like the mouth as well as the small area around your eye area. Older people, helps the skin look a lot more tightly, though it cannot be totally efficient, because the epidermis can be a kind of long term suspension. Nevertheless, the outcomes are generally noticeable, and durable. The particular recommended serving of Botox injections on a daily basis is amongst the several weeks, as well as adequate to cause you to look younger for years. Actually improves the skin and often the end results are generally comprehensive to the level that men and women who don't have got wrinkles, use it to appear greater.

      Featured just about all robust Innovative Pharmaceutic Find out Company, Upper China'S Websites Pharmaceutical Business, actually is "the final results upon 863 taller-tech questions and as well , building process exchange start.Inches This begin, company is very difficult. Seen in healthcare website whole operation, the collection united parcel service, exactly like genomics, bioinformatics, beef filtration, ingredient functionality investigate operating many different fighting styles and in addition , veteran men and women, accompanied by Northern Far East Prescribed Medicine Enterprise's conventional organization, did start to rework old-school industrial market sectors in present day inbreed preliminary experiment with.

      chinese herbal weight loss pills

    • profile image

      Karthick 5 years ago

      Good information

    • profile image

      01722767714 5 years ago

      very nice ... i like it

    • profile image

      znz 5 years ago

      thank u so much this information made me easy to give seminar in my college i got many points frm it

    • profile image

      pavithra 5 years ago

      thank u for the clear view...

    • profile image

      nigel flex 4 years ago

      thanx a spn

    • profile image

      christopher zellah 4 years ago

      thanks you for this detail because it enable me to educate the society about management of financial condition

    • profile image

      christopher zellah 4 years ago

      thanks you for this detail because it enable me to educate the society about management of financial condition

    • profile image

      Nidesoissiorb 4 years ago

      We helpful to find at the top of existence nevertheless these days I have piled up any amount of resistance.

    • profile image

      Futamarka 4 years ago

      А так как положение в экономике становится всё хуже, то экономический спад в этой стране скоро достигнет беспрецедентной глубины. Так не пришло ли время уходить из крупных городов Америки? В конце концов, каждый из нас встанет перед необходимостью ответить для себя на этот вопрос. Рабочих мест мало, поэтому, если у вас в данный момент есть хорошая забота, то, наверное, не стоит отказываться от неё. Это может быть невероятно сложным напудриванием Прикол - переехать в другое место, когда у вас нет заботы.

    • profile image

      Sally 4 years ago

      Can u please give me your real name cause I want to use this as a reference for my thesis-u can send it 2 ( Thanks

    • profile image

      Mylindaminka 4 years ago

      То есть яркий оргазм можно получить тогда, когда сексуальные энергетики обоих партнеров вступают в резонанс друг с другом, когда возникает полная гармония их переживаний, ритмов движений и дыхания.

    • profile image

      sony 3 years ago

      Its really helpful

    • profile image

      kultaran 3 years ago

      thanks a lot 2 d writer t ll definitely help 2 crack my exams

    • profile image

      jared 3 years ago

      Thanks a lot hav nao understood the.theory of errors...

    • profile image

      christine 3 years ago

      It so wonderful,i like this page for giving us quick,clear and first hand information.Thank you

    • profile image

      Oddo 3 years ago

      Hell team, its really helpful

    • profile image

      bala 3 years ago

      It help to students. Very nice

    • profile image

      magesh krishnasamy 3 years ago

      super nice

    • profile image

      jeff 2 years ago


    • profile image

      any name 2 years ago

      know tanks

    • profile image

      AGIM CELSUS USHIE. 24 months ago

      Dis is a disent information, it help me alot in my assignment given by my (HOD), an as well gives me more knowledge an skill's, in my honorable profession..tanx alot an GOD wil grant us more wisdom to move Nigeria forword by giving appropriate records an detections of fraud an errors, recorded by 419ners who are respectively employed both refuse to do their job correctly..Tanx again an GOD bless.

    • profile image

      Saranya 20 months ago

      It will be very helpful for all commerce students- Thank you very much!!!

    • profile image

      dinesh 18 months ago

      Thank you so much

    Click to Rate This Article