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AUDITING & CORPORATE GOVERNANCE STUDY MATERIAL SIXTH SEMESTER CORECOURSE :BC6B13 For B.Com. (2017 ADMISSION ONWARDS) UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION Calicut University P.O, Malappuram, Kerala, India 673635 342 A School of Distance Education UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION STUDY MATERIAL SIXTH SEMESTER B.Com. (2017ADMISSION ONWARDS) CORE COURSE : BC6B13 AUDITING AND CORPORATE GOVERNANCE Prepared by: Rajan P, Assistant Professor of Commerce, School of Distance Education, University of Calicut. Auditing and Corporate Governance Page 2 School of Distance Education CONTENTS Module Page No. Module 1 4 - 29 Module 2 30 – 68 Module 3 69 – 80 Module 4 81 – 92 Module 5 93 - 106 Auditing and Corporate Governance Page 3 School of Distance Education MODULE 1 MEANING AND DEFINITION OF AUDITING The word audit is derived from Latin word audire which means to hear. Auditing is a critical examination of the records and books of account of a business by an independent qualified person for ascertaining the authenticity and the accuracy of entries appearing in the books of account and financial statement. 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 explanation given to him and is shown by the books and if not in what respect he is not satisfied.” Montgomery defined auditing as examination of the books and records of a business in order to ascertain or verify and report up on the facts regarding the financial operations and the results thereof.” ORIGIN AND EVOLUTION The term audit is derived from the Latin word audire, which means to hear. In early days an auditor used to listen to the accounts read over by an accountant in order to check them. Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Greece, Egypt, Rome, U.K. and India. The Vedas contain reference to accounts and auditing. Arthasashthra byKautilya had emphasized the importance of accounting and auditing. The original objective of auditing was to detect and prevent errors and frauds. Auditing evolved and grew rapidly after the industrial revolution in the 18th century with the growth of the joint stock companies the ownership and management became separate. The shareholders who were the owners needed a report from an independent expert on the accounts of the company managed by the board of directors who were the employees. The objective of audit shifted and audit was expected to ascertain whether the accounts were true and fair rather than detection of errors and frauds. In India, the companies Act 1913 made audit of company accounts compulsory with the increase in the size of the companies and the volume of transactions. The main objective of audit shifted to ascertaining whether the accounts were true and fair rather than true and correct. Hence the emphasis was not on arithmetical accuracy but on a fair representation of the financial efforts. Auditing and Corporate Governance Page 4
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