AUDITING SEMESTER-IV WWW-POFFILES.ie ODUCTION WWW.PDFFILES.IN 1 4. Meaning of Auditing Auditing implies the examination of books of accounts and related documents of an organisation in order to correctly estimate their accuracy, completeness and regularity. Such an examination is carried out by a competent and unbiased person with the help of evidences, documents, information and explanations given to him. For example, ifa person goes o a doctor to have himself examined, the doctor, only after a thorough examination of his body, gives his report asto whether he is healthy or not, and if not, what is the ailment he is suffering from. In the same manner, a businessman gets his books of accounts examined by a doctor of books of accounts (i.e. the auditor) who, aftera thorough examination ofthe books, gives hisreport as to whether ornot they givea true and fair view of the state of affairs of the business, and if not then what are the errors, deficiencies and faults in them. @ 2. Origin and Development of Auditing The English word ‘Auditing’ is derived from the Latin word ‘Auditor’, which literally means ‘to hear’. In ancient Greece and Rome, accountants used to be appointed in order to maintain the records of the government treasuries. These accountants used to go to prominent judges to get their accounts certified and used to recite their accounts in front of those judges. These judges, upon hearing the accounts, used to give their decisions as to whether the accounts were authentic or not. Inancient times auditing was merely concerned with listening, The scientific technique of book-keeping was first propounded in 1494. The father of this technique, Lucea Pacialo, published a paper on the Double Entry System in which he also discussed the rights and duties of an auditor. Slowly the double entry system became popular among business organisations. However, in the field of auditing the first revolution came about in the year 1844 when in England, through the Companies Act, the preparation of a Balance Sheet by companies and getting the same audited was given legal recognition. In the beginning the company used to appoint one of its members as the auditor, and for this he was not required to have any auditing qualifications. In such a situation, the person used to take the help of accountants in his work. Soon it was felt that the auditor should bea person who has complete and comprehensive inowledge of accounts. Because of this only in 1888 the Institute of Chartered Accountants was set up in England with the aim of preparing qualified accountants and qualified auditors. InIndia, the history of auditing begins from the Ist of April 1914, when the Companies Act of 1913 came into force. This Act made it mandatory for every company to get its yearly accounts audited and also spelt out the qualifications of a person to become an auditor. It also empowered all the state governments to issue certificates of eligibility for appointment as auditors to persons who possessed. complete knowledge of the double-eniry system. Apart from this, those people holding certificates from the Association of Accountants and Auditors in Britain were also declared as qualified for appointment asment of Bombay first started the system of .d the holding of this diploma was holder of such a diploma could be auditors in India. Among the state governments, the Governt awarding the ‘Government Diploma in Accountancy’, an considered as sufficient qualification for appointment as auditor. The appointed as auditor in any state in India. Until the year 1932, it was the responsibility of the state governments fo prepare competent auditors. However thereafter, the Central Government also started laying emphasis on the issue and cave outwith the Auditors’ Certificate Rules, which provided for the granting of the designation of R.A. or Registered Accountant, After acquiting this designation a person could be appointed as an auditor. “Thereafter, the demand for ‘professional autonomy’ also gained force and the government, on the 1st of May, 1948, set up an Accountancy Experts Committee. The committee submitted its report on ‘4th of July, 1948 in which itrecommended that an ‘Institute of Chartered Accountants’ should be set up through a legal enactment. ‘The government accepted the recommendations of the committee and in 1949 passed the Chartered Accountants Act, 1949. Under this Actthe Institute of Chartered Accountants of India was setup in Delhi. This Act came into force from the Ist of July, 1949. With the passing of this Act the control, organisation and direction of the profession passed from the hands of the Central Government into the hands ofan institution known as The Institute of Chartered Accountants of India, formed under the said ‘Act. Thereafter, in order to become an auditor a person had to be a member of the institute, and could get certificate of ‘Chartered Accountant’ only after clearing the examinations conducted by the institute. ‘The management of the institute is in the hands of a committee. The committee consists of 24 ‘members from among the fellow members ofthe institute. Apart from these the Central Government also appoints six nominees to the committee. This committee is responsible for running and management of all the affairs of the institute. ‘The institute maintains a register ofits members. There are two kinds of members ofthe institute: (i) Associates: They ate members of the institute and their names appear in the register of members. They are entitled to use the suffix A.C.A. (Associate of the Institute of Chartered Accounts of India) after their names. (i) pate fe ae penn et become fellow members of the institute on the fulfilment of ; continuing in practi isteach Tee en ee! gS fe years, payment of the Chartered Accountants) after their name. Onthe Istof April, 1956, the new Compan : companies audited t also dealtindepth with the righ’, duties and remorctelton ot eke the qualification of an auditor is ith Yesponsibilities of auditors. As far as concerned it has made no change from the only a chartered accountant can become an auditor. Previous Act. However, now (Fellows of the Institute of