Audit or auditing refers to observing and examining accounting records, financial reports, and other statutory items that have an impact on an entity. In doing so, the auditor has a list of objectives. The main objective or goal of an annual audit is to provide an opinion as to whether the financial statements presented by management are true, fair, and free from material misstatements.
Eight (8) List of Audit Objectives
- Examine books of accounts
- Give an opinion on financial statements
- Performs internal control checks
- Prepares management report
- Examine compliance with industrial requirements
- Verify the existence of assets and liabilities
- Detects errors
- Fraud examination
Audit Objectives Lists Explained
The above lists of audit objectives are explained in detail below:
Examine books of accounts
One of the first tasks auditors do is to examine the books of accounts. The vouchers are observed and checked if they comply with the organization’s policy. After which they are checked along with the records in the books of accounts. This helps the auditor to know if source documents are posted correctly into the books of accounts. The accuracy of these records is important. If they lack accuracy, it will affect the financial reports.
The primary objective of an audit is to give an opinion. In an annual audit. The external auditor provides an audit report. The report usually provides reasonable or limited assurance regarding the audit. It clearly states if the financial reports presented to users are true and fair. Also, it proves that the financial statements are free from material errors and misstatements.
Internal control checks
Audits do not only involve examining books of accounts. It includes checking the internal control process of an entity. If there are leaks in the internal control, employees can use them to commit fraud and no one will notice it unless something happens. Therefore, external auditors check if the internal control system covers every area of the organization. And strengthen the control mechanism if there are leaks.
Prepares management report
One of the end products of an audit is the preparation of audit reports. The reports include areas the organization needs to make improvements. An external auditor ensures that in the next audit, they confirm if previous areas of improvement were observed. Management reports are for the managers or executives of the entity. Also referred to as C-Suites staff. The report is like a third eye. It helps management to see their weaknesses in supervising and monitoring. And works toward improving it.
Compliance with industrial requirements
Audit Objectives also include checking for compliance with industrial requirements. Entities in a particular industry have regulatory requirements. And failure to comply may attract sanctions. The sanctions can be fines or other things that may affect the entity’s ability to do business and make more profit. Therefore, auditors performing audits in those industries must ensure that the company complies with the industry regulations.
Verify the existence of assets and liabilities
In auditing, it is important to verify the existence of assets and liabilities. This is to avoid Ghost assets and liabilities. The auditor will undertake physical verification. That is, he or she will see if the assets and liabilities in the books of accounts are in existence.
Humans are prone to errors. When examining vouchers and their records in the books of accounts, the auditor checks if there are errors. When errors are made, they should be corrected as soon as possible.
Fraud examination is not the primary job of an audit. However, during its job, a fraud may be detected and reported to management. Also, if an entity notices fraud and needs to do more investigation, the auditor can be called upon to investigate the fraud.
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The eight lists of audit objectives have been explained above. Most of them have a relationship with the primary objective mentioned. Detecting fraud is a secondary objective of an audit. And the audit process may not detect fraud even if fraudulent activity is in the entity. One reason is the use of samples in auditing.