DEFINITION AND MEANING OF AUDlTING OR AUDIT
Auditing in the Literal Sense:
The term ‘audit’ is derived from the Latin word ‘audire’, which means ‘to hear’.
in ancient times, whenever trauds were suspected. the proprietors of business firms used to appoint some experienced and impartial persons, ordinarily judges. to check the correctness of the accounts of their firms prepared by their book-keepers (i .e., the persons who had maintained the books of accounts). The persons appointed to check the correctness of the accounts used to only hear from the book‘keepers alt the accounts relating to the business, and, on the basis of the hearing of accounts, would express their opinion about the correctness or otherwise of the entries made In the books of accounts.
The hearing from the book-keepers all the accounts relating to the business came to be known as audit or auditing, and the persons who heard from the book-keepers all the accounts relating to the business came to be known as auditors. So, literally, 'audit’ or ‘auditing’ means hearing, and 'auditors' mean ‘hearers’.
Auditing in the General Sense:
Now, let us consider the meaning of the term ‘audit’ or ‘auditing’ in the ordinary or general sense. Initially, the term ‘audit‘ or ‘auditing’ was taken to mean examination of the books of accounts of a business to ascertain whether the persons in charge of receiving and paying cash and maintaining the books of accounts had properly accounted for all the cash receipts and cash payments on behalf of their principal
'(i.e., the owners of the business). In other words, initially, the term 'audit’ or ‘auditing’ was taken to mean checking of the books of accounts of a business to find out whether cash had been embezzled (is, misappropriated), and if so, who had embezzled it (is. the cash) and how much of cash had been embezzled. In short, in the beginning, the term 'audit' or ‘auditing meant only ‘cash audit' (is. examination or checking of the cash receipts and cash payments).
Modern Concept 01‘ Auditing:
However, over the years, the meaning of the term ‘audit’ or ‘auditing’ has undergone a considerable change. Today, audit or auditing (is, audit or auditing in its modern concept) means Thorough and critical examination of all the books of accounts any records of a business by an independent person or body of persons Qualified for the lob to verify the arithmetical accuracy of the account as well as the authenticity and the truth of the transactions recorder, in the books of accounts and in the financial statements, and try report to the owners of the business whether the profit and ice; account gives a true and fair view of the profit or loss of the business for the financial period, and the balance sheet gives a true and far, view of the slate of affairs of the business at the end of the financial period.
The above meaning of audit or auditing in its modern concern (i.e., modern audit or auditing) is borne out by the definitions given. by several writers on the subject ‘auditing'. So, let us consider some of the important definitions of ‘audit’ or ‘auditing’, and understand how far the above meaning of modem audit or auditing is borne out by these definitions.
Spicer and Pegler have defined audit as “such an examination of the books, accounts and vouchers of a business as will enable the auditor to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and whether the profit and loss account gives a true and fair view of the profit or loss for the financial period, according to the best of his information and the explanations given to him and as is shown by the books, and if not, in what respects he is not satisfied.” According to this definition, auditing is the systematic and scientific examination of the books of accounts and the records If the business to verify whether the balance sheet and the profit and loss account are properly drawn up, and to report whether the balance sheet gives a true and fair view of the financial position the business, and the profit or loss account gives a true view of the profit or loss of the business.
in the words of F.R.M.De Paula, “An audit denotes the examination of a balance sheet and profit and loss account prepared by all together with the books, accounts and vouchers relating thereto such a manner that the auditor may be able to satisfy himself at honestly report that in his opinion, such balance sheet is proper drawn up so as to exhibit a true and correct view of the state affairs of the particular concern, according to the information a
epla dons given to him and as shown by the books
According to Dicksee, “Auditing can be understood as an examination of accounting records undertaken with a View to establishing whether they correctly and completely reflect the transactions to which they purport to relate. in some instances, it may be necessary to ascertain whether the transactions are supported by authority." According to this definition, auditing is the examination of the accounting records to establish whether the transactions of the business have been undertaken with proper authority, and whether the accounting records correctly and completely reflect the transactions to which they relate, and also to report whether the financial statements (i.e., the balance sheet and the profit and loss account) prepared from the accounting records portray a true and fair picture of the business.
Montgomery defined auditing as ‘a systematic examination of the books and records of a business or other organisation in order to ascertain or verify and to report upon the facts regarding the financial operations and the results thereof.” According to this definition, auditing is the systematic examination of the books of accounts and the records of a business organisation or any other organisation to verify and report upon the facts regarding the financial operations and the financial results (i. e., the profit or loss and the financial position)
R Batiiboi defined audit as “an intelligent and critical scrutiny of the books of accounts of a business with the documents and vouchers for which they are relied upon for the purpose of ascertaining Whether the working results for a particular period as shown by the profit and loss account and also the exact financial condition of the business as reflected in the balance sheet are truly determined and presented by those responsible for their compilation.” According to this definition, auditing is a critical examination 'of the books at accounts of a business with the vouchers and other documents for a purpose of ascertaining whether the working results (Le, the refit or toss) of the business tor a particular period.
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