Summary: Auditing is often narrowly misunderstood as simple verification or a task solely for accountants, but the profession is a distinct and complex process that culminates in expressing an opinion on financial statements. This opinion concerns whether the statements present a ‘True and Fair’ view, meaning they are free from material misstatements, extending beyond mere arithmetic accuracy. An audit is not just re-tracing accounting steps; it is a structured discipline requiring the auditor to apply professional judgment based on evidence gathered through procedures compliant with all Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India. Adherence to SAs is mandatory for company audits under Section 143(9) of the Companies Act, 2013, and is required for non-corporate entities whenever the term ‘audit’ is used. Effective auditing therefore necessitates expertise not only in accounting but also in various fields like relevant laws, regulations, and taxation, alongside strict adherence to independence requirements embedded in both the Companies Act and the Auditing Standards. Verification is merely an initial step in this comprehensive, regulated process.
The meaning of the term ‘Auditing’ is elusive to many. From time-to-time attempts are made by many to squeeze the term auditing to suite the specific agenda of the group they belong to. The following are some of those;
‘Auditing is nothing but verification. Any educated person can do that.’
‘Accountants are better auditors as they are good at accounting. But auditors are not good accountants. ‘
These are some of the jibes being made at auditing profession.
An attempt is made to address the issues in this article.
Does a verification report of errors and differences will pass as an audit report?
If a good accountant retraces the accounting process, does it amount to audit?
The answers to both the above questions are ‘No.’
Then what is an audit?
An audit is a complex process that results in the expression of an OPINION on the financial statements subjected to audit. The opinion is about whether financial statements are ‘True and Fair’
The opinion is formed as a result of exercising ‘professional Judgement’ on the perusal of the outcomes of various tests performed by the auditor on the audit evidences obtained through performance of procedures to be followed by the auditor in accordance with all the ‘Standards on Auditing’ issued by the Institute of Chartered Accountants of India.
It covers the whole process of audit and includes what is to be done about anything that comes up even after the report is signed and issued.
The Companies act 2013 mandates the observance of Standards on Auditing in the audit of companies under Section 143(9).
In the case of non-corporate entities also Standards lays down that wherever the term ‘audit’ is used all the standards on auditing are to be complied with.
Coming to ‘True and fair’. It means freedom from material mis statements not arithmetical accuracy alone.
The precautions to ensure Independence of auditors are also embedded in the Companies Act and Auditing Standards.
So auding requires good knowledge of not only accounting, but Laws and regulations, taxation matters and many other areas in its execution.
Auditing includes verification, and it is only the starting point and not verification alone.
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