The original object of an audit was principally to see whether the personnel involved in accounting had properly accounted for the receipts and payments of cash. In other words, the object of audit was to find out whether cash had been embezzled and if so, who embezzled it and what amount was involved. Thus, it was only an audit of cash book. But, at present, the main object of audit is to find out, after going through the books of accounts, whether the balance sheet and profit and loss account are properly drawn up accordingly and whether they represent a true and fair view of the state of the affairs of the concern. This is possible when he verifies the accounts and the statements. While performing his duties, the auditor has also to discover errors and frauds.

The ICAI in its “Statement on objective and scope of the audit of financial statements” (SA-200A) enumerates the following as the objectives of auditing the financial statements:

1. The objective of an audit of financial statements, prepared within a framework of recognized accounting policies and practices and relevant statutory requirements, if any, is to enable an auditor to express an opinion on such financial statements.


2. The auditor's opinion helps determination of the true and fair view of the financial position and operating results of an enterprise.

The auditor should be an independent person who is appointed to investigate the organization, its records and financial statements prepared from them and thus form an opinion on the accuracy and correctness of the financial statements. The primary aim of an audit is to enable the auditor to conform that the accounts show a ‘true and fair view' or that they do not.

So, the primary object of an audit is to promote efficiency and accuracy in accounting and to place before the shareholders and management accurate information of the financial condition of the business, which may serve as an aid to overall administration of the business entity. For the fulfillment of the primary objects of an audit, the following subsidiary objects are to be realised:

1. Detection of errors.


2. Detection of frauds.


3. Prevention of errors.


4. Prevention of frauds.

Again, errors, which arise out of innocence and carelessness, are of three types:

1. Clerical Errors.


2. Compensating Errors.


3. Errors of Principles.

Also, Clerical Errors may be of two types:

1. Errors of Omission,


2. Errors of Commission.

On the other hand, frauds which arise out of some intention to gain something through some manipulating devices are of three types:

1. Misappropriation or Embezzlement of Cash.


2. Misappropriation of Goods,


3. Manipulation of Accounts.

The objects of auditing can be presented in the following chart:

 

 

So, the overall objective of the audit of the financial statements of an entity is to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form and communicate to the users of the financial statements an audit opinion on the reliability of the assertions of management inherent in those financial statements for the purpose of adding credibility to those assertions.

How the objective is achieved?

The principal objective noted above might be expended by including a reference as to how the objective is achieved. Auditors achieve their objective by gathering and evaluating audit evidence. The evidence needs to be such quantity and quality that the auditor is able to form an opinion on the financial statements. Thus, it may be stated that the objective of audit of the financial statements of an entity is to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form an opinion on the financial statements prepared by management. The ‘quality’ term refers to the relevance and reliability of the evidence and ‘entity’ includes entities such as partnerships, trusts, government departments, and quasi-government organisations as well as corporate entities. The objective of audit of financial statements is the same, irrespective of the entity to which the financial statements relate.

Financial statements are simply a collection of assertions

For example, the expression “inventory, at cost of Rs. 1,000 in a set of financial statements is in fact an assertion by management that, inter alia, inventory actually exists, that it is owned by the entity at balance date, that it costs Rs. 1,000 and that is no other inventory. The objective of an audit can thus be expanded to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to able form an opinion on the reliability of the assertions by management inherent in those financial statements. Financial statements are considered reliable if they are, in all material aspects, complete, valid and accurate. That is, financial statements are reliable when they contain no material misstatements, which are, in effect, what management asserts when they prepare the financial statements.

Why an audit is performed?

Auditors perform an audit so as to add creditability to management's inherent assertions included in the financial statements. If the audit is to have any value, the auditor's opinion as to the reliability of the assertions must be communicated to the users of the financial statements. The auditor ‘communicates’ the results of the audit through the audit report, a document, often just one page in length, that is attached to audited financial statements and that sets out the scope of the audit together with the auditor's opinion on the reliability of the assertions inherent in the financial statements. Financial statement ‘users’ include such groups as shareholders, suppliers, customers, lenders, borrowers, potential investors and regulatory authorities. Accordingly, the objective may be expanded to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form, and communicate to the users of the financial statements, an opinion on the reliability of the assertions of management inherent in those financial statements for the purpose of adding creditability to those assertions.

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