CHARACTERISTICS OF AUDITING

1. INDEPENDENT EXAMINATION:
Audit is concerned with independent examination. An auditor must be independent in
fact and appearance. He is independent if he is not an employee.
2. FINANCIAL INFORMATION:
Audit relates to financial information of a business concern. The books of accounts and
financial information provide data about business. The auditor examines such
information to test validity of data.
3. ENTITY:
Audit deals with an entity, enterprise, undertaking, concern, agency or company. All
aspects of entity relevant to financial statements are covered by audit.
4. BUSINESS FOR PROFIT:
Audit is essential for business set up for profit in private sector. In real life
proprietorship, partnership and companies are working for profit. Audit is compulsory
for companies and it is optional for other businesses.
5. NON-PROFIT BUSINCESS:
Audit is conducted of non-profit associations. Many companies are working for welfare
of society. These companies promote art, religion, charity and other useful objects.
6. SIZE OF BUSINCESS:
The size of business may be small, medium or large. Proprietorship, partnership and co-
operative society are small in size. Private limited company may be medium and public
limited company is large in size. Audit is suitable for every size of business.
7. LEAGAL FORM:
Audit can protect business assets and rights of owners. The legal form may differ from
business to business. But audit is equally beneficial for all forms of business concerns.
8. EXPRESSING OPTION:
Audit is conducted for expressing an option on financial information. The auditor can
express an opinion whether financial statements give a true and fair view and comply
with relevant laws.
SCOPE OF AUDIT
Audit procedures considered necessary to achieve objective of audit is called scope of
an audit. The audit procedures should meet legal requirements and regulations of
relevant professional bodies and terms of audit engagement and purporting
requirements.
1. LEGAL REQUIREMENTS:
The auditor can determine the scope of an audit of financial statements in
accordance with the requirements of legislation, regulations or relevant professional
bodies. The state can frame rules for determining the scope of audit work. In the
same way professional bodies can make rules to conduct the audit. The auditor can
follow all the rules applicable on the audit work while checking the accounts of a
business concern.
2. AUDIT OF ALL ASPECTS OF ENTITY:
The audit should be organized to cover all aspects of the entity as far as they are
relevant the financial statements being audited. A business entity has many areas of
working. A small entity may have few functions while large concern many function.
The auditor has duty to go thought all the functions of business. The audit report
should cover all functions so that the reader may know about all the working of a
concern.
3. RELIABLE INFORMATION:
The auditor should obtain reasonable assurance that information in accounting
records is reliable and sufficient as the basis of preparation of financial statements.
The auditor can use various techniques to test the validity of data. The information
becomes reliable when figures appearing financial statements tally withy figures in
ledger.
4. PROPER COMMUNICATION:
The auditor should decide whether the relevant information is properly
communicated in the financial statements. Accounting is an information system
 through which facts and figures must be so presented that reader can get
information about the business entity.
5. EVALUATION OF ACCOUNTING RECORD:
The auditor checks that information in accounting records is sufficient and reliable.
He studies and evaluates accounting system and internal controls to determine the
nature, extent, and timing of other auditing procedure.
6. SUBSTANTIVE TESTS:
The auditor assesses the reliability and sufficiency of the information in the
accounting record by carrying out other tests, enquires and other verification
procedures of accounting transactions and account balances as he considers
appropriate in the particular circumstance.
7. COMPARSON OF FINANCIAL STATEMENTS:
The auditor determines whether the relevant information is properly
communicated. He compares the financial statements with financial records and
other source date. He checks whether they properly summaries the transactions and
events therein. The auditor can compare the accounting record with financial
statements in order to check that same data has been processed for preparing the
final accounts of a business concern.
8. TESTING MANAGEMENT JUDGEMENTS:
The auditor determines whether the relevant information is communicated
properly. He considers the judgments that management has made in preparing the
financial statements. The auditor assesses the selection and consistent application of
accounting policies. He checks the manner in which the information has been
classified and the adequacy of disclosure. The auditor must have the quality of
judgment when accounting books do not provide the true data.
9. JUDGMENTS INCREASE WORK:
Judgments increase the work of auditor. He determines the extent of audit
procedures. He assesses fairness of judgments. He checks estimates made by
management in preparing financial statements. The accounting date is based on
 personal judgments also increase work of an auditor. He is also bound to make guess
work on the basis of available date.
10. EVIDENCE IS PERSUASIVE:
The audit evidence available to auditor is persuasive rather than conclusive in
nature. Absolute certainty in auditing is rarely attainable due to judgments and
persuasive evidence. That is why the auditor can express an opinion as true and fair
instead of exact and cent per cent correct. The personal judgments affect the value
of many items. The value of such items becomes an opinion so cent per cent
accuracy is not there.
11. CHANCE OF MISSTATEMENT:
The auditor carries out procedures designed to obtain reasonable assurance that
financial statements are properly stated in all material respect. Because of test
nature and other inherent limitations of an audit, together with limitations of any
system of internal control, there is an unavoidable rest that even some material
misstatements may remain undiscovered. The statements show true and fair view
instead of exact views of operations.
12. INDICATION OF ERRORS:
The auditor may get an indication that some fraud or errors have occurred which
could result in material misstatement. The auditor should extend procedures to
confirm or dispel his suspicion. It is the duty of auditor to check cent percent items.
He must try to discover the errors in accounting books and other records when he
smells any doubt. He should clear the doubt or confirm it while going through the
record.
13. EXPRESSING OPINION:
The auditor can express unqualified opinion if he is satisfied about financial
information of business. When he finds weaknesses in accounting record then he
should express qualified opinion or disclaimer of opinion.