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Why is there a need for an Audit?

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Nouman Umar answered
The dominant principle of audit is the examination by an independent person of the accounts or statement made by an accountable party with a view to reporting to the person to whom the account is rendered on its truth or falsity. The discovery of errors, fraudulent or otherwise although frequently supposed to the main object of audit and in practice of great importance, is only a part of the general purpose.

In the Act nowhere the question of discovery of fraud in relation to the auditor's responsibility is discussed although negligence on his part leading to the failure to discover defalcations would normally render him liable in damages. Where an undertaking whose accounts being audited is large, greater reliance has to be place on the system in use of the prevention and detection of misappropriations and errors.

Therefore the auditor has to use test checking techniques to ascertain whether the system is satisfactory and is being efficiency carried out. In smaller audits more detailed work will have to be done as the system of internal check would be lacking.

The audit objectives are classified as under:
• The detection and prevention of errors or mistakes.
• The prevention and detection of loss to the client by reason of fraud or misrepresentation resulting in the accounts being false or incomplete.

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