Xyz Co Co Essay

2747 Words Jun 24th, 2015 11 Pages
Objectives, Advantages and Limitations of Auditing in a Globalized Business world

There are two main objectives of auditing. The primary objective and the secondary or incidental objective.

a. Primary objective – as per Section 227 of the Companies Act 1956, the primary duty (objective) of the auditor is to report to the owners whether the balance sheet gives a true and fair view of the Company’s state of affairs and the profit and loss A/c gives a correct figure of profit of loss for the financial year.

b. Secondary objective – it is also called the incidental objective as it is incidental to the satisfaction of the main objective. The incidental objectives of auditing are:

i. Detection and prevention of Frauds, and
ii.
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Apart from this, the statements of account have their own purpose and use of portraying the financial state of affairs.

The objective of audit, naturally, should be to see that what the statements of account convey is true and not misleading and that such errors and frauds do not exist as to distort what the accounts should really convey. Till recently
, the principal emphasis was on arithmetical accuracy adequate attention was not paid to appropriate application of accounting principles and disclosure, for ensuring preparation of accounting statement in such a way as to enable the reader of the accounting statement to form a correct view of the state of affairs.

Quite a few managements took advantage of the situation and manipulated profit or loss and assets and liabilities to highlight or conceal affairs according to their own design. This state of affairs came up for consideration in the Royal Mail Steam Packet Company’s Case as a result of which the Companies Acts of England and India were amended in 1948 and 1956 respectively to require the auditor to state inter alia whether the statements of account are true and fair. This is what we can take as the present day audit objective. The implication of the substitution of “true and fair” needs to be understood. There has been a shift of emphasis from arithmetical accuracy to the question of reliability to the financial statements. A

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