Differentiate Between

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Q.No.3 Distinguish between Auditing and Accounting?

Accounting Auditing

1. It is an art of recording, classifying,summarizing and interpreting the

Transaction.

2. It works with raw or primary data andhas primary responsibility for bringing

out useful results of operation.

3. Accountant is primarily responsible forthe preparation of financial

statements.

4. Accountant need not to be qualifiedchartered Accountant

5. The management determines theextent of work.

1. It is an examination and reporting ontheir accuracy.

2. Auditing works beings, where theaccounting work ends

3. It is concerned with the preparation &submission of report

4. He must be a Chartered Accountant incase of public limited company.

5. The extent of work is determined byCompanies Ordinance.

Q.no13: Distinguish between: -

Articles of Association and Memorandum of Association.

Memorandum of Association. Articles of Association

1. It contains the conditions upon whichthe company is granted incorporation.

1)The article is the internal regulation of the

company and over these the members have


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2. It cannot give the company power todo anything contrary to the provision of the

Companies Ordinance.

3. It is in the nature of a contractbetween the company and the outside world

dealing with the company.

4. It contain the object & power of thecompany

5. It cannot be altered except as regardscertain specified particulars & in accordance

with the provisions of the law.

full control and they can be easily altered.

2) They are not only limited by the Ordinance

but they are also subsidiary to the

memorandum.

3) They do not create a contract between the

company & the outsiders.

4) They provide the regulations by which thoseobject and power are to be carried into effect.

5) The can be altered by a special resolution at

any time.

Q.No.17 Distinguish between an external auditor and internal auditorAlthough there are various similarities of work of an internal auditor and external auditor. But still there

are major differences between the two, which are narrated as under: -


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External Auditor Internal Auditor

1 Main objectiveTo express an opinion whether the

financial statement discloses a true fair

view of the companys affairs.

2. Appointment

Appointed by the shareholders.

3. Scope

Determined by statues (e.g. Companies

Ordinance 1984)

4. Status

He is working independently by hisresponsibility is to report to the

shareholders.

1.QualificationIn case of public limited companies, the

auditor must be a chartered Accountant.

To detect error and fraud or as determined by

the management.

Appointed by the management.

Determined by the management.

He is an employee of the company and is

responsible to report to the management.

In this case the qualification is determined by

the management.


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Q.19: Distinction between Financial Audit and Cost Audit.

Ans. It is difficult to make distinction between Financial Audit and Cost Audit from the Practical point

of view though in Principle the difference does exist.

As a matter of fact, in cost as well as in Financial Audit, the audit it is ultimately concerned with

the financial Audit, the auditor is ultimately concerned with the financial aspect of every

business transaction.

However, a few points of distinction between the two audits are given below:

Financial Audit Cost Audit

1. It is Compulsory under companies ordinance

1984.

It is not Compulsory

2. Objects are to find out proper maintenance

of accounts and representing fair and correct

view of the state of affairs of the companys

Balance sheet and profit and loss Account.

Objects are to find out whether expenditure

involved has been wisely incurred or not and

to find out the cost of manufacture of each

unit of goods.

3. The auditor does not go into the details of

the cost of records.

Auditor has to check details the cost account

to detect manipulations

4. Auditor has to see whether inventories have

been properly valued and shown correctly for

the purpose of Balance Sheet.

Auditor has to see whether the inventories are

excessive or inadequate for the need of the

factory.

5. Auditor has to see whether the ledger

entries and castings are correct.

Auditor has to take into account the storage

cost.

6. Auditor is not concerned with the issuance

of Raw Material according to the program.

Auditor has to see that materials issued

according to the program

7. The field audit is limited. The field of audit is wide.

8. Auditor is concerned with the examination

of financial aspect of accounts.

Auditor is concerned with the cost aspect of

the accounts.

9. Primarily concerned to serve the interests of

the shareholders.

Primarily concerned to serve the interests of

the management.


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10. The role is in the office. The role is in the factory.

11. Auditor has to certify the arithmetical

accuracy of the entries in the proper books of

accounts.

Auditor has to go through Subsidiary / ledger

regarding material, labour and other items of

costs.

INTERNAL CONTROL

Q.45: What is internal Control? Clearly distinguish between Internal Check, Internal Audit and Internal

Control.

Internal Control Internal Check Internal Audit

According to International

Auditing Guideline No. 6, the

system of internal control is

the plan of organization and

all the methods and

procedures adopted by the

management of an entity to

assist in achieving

management objectives of

ensuring, as far as practicable,

the orderly and efficient

conduct of its business,

including adherence to

management polices, the

safeguarding of assets, the

prevention and detection of

frauds and errors, the

accuracy and completeness of

the accounting records, and

he timely preparation of

reliable financial information.

The system of internal control

extends beyond those

Internal Check can be defined

as the checks on the day to

day transactions which

operate continuously as part

of the routine system

whereby he work of one

person is proved

independently, the objective

being the prevention or early

detection of errors and

frauds, it includes matter such

as the delegation and

allocation of authority and he

division of work the method

of recording transactions, and

the use of independently as-

certained total against a large

number of individual items

can be proved .

Internal Audit can be defined

as, An independent appraisal

activity within an organization

for the review of operations

as a service to management, it

is a managerial control which

functions by measuring and

evaluation the effectiveness

and other control.

Internal Audit acts as a

separate, higher level of

internal control to determine

the level whether the

underlying accounting system

and internal accounting

controls there in a re

functioning effectively.


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matters, which relate directly

to the functions of accounting

system.


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AUDITING1. MAIN OBJECTIVES:

To verify whether the financial

statement display a true and fair view of

the state if affairs and working results of anundertaking.

2. LIABILITY:

Auditor liability is determined by

statute and cannot be limited.

3. Approach:

a) Test examination based on review of

internal control.

b) Auditor may rely on compliance and

prima facie evidence.

c) Auditor should assume a figure or a factas correct unless evidences obtained prove

otherwise.

d) Auditor would reelect a representative

sample of transactions, examine them in

depth and if nothing arouses suspicion he

his conclude his examination.

4.Auditor is concerned about the consistent

use of accounting policies and compliance

INVESTIGATIONTo establish a fact or happening or to assess a

particular situation.

Investigators liability is based on the

engagement letter and can be limited.

Relatively through examination of the select

areas.

Investigators have to obtain substantive and

conclusive evidence.

Investigator should not accept a fact as correct

until it is substantiated.

Investigator would attempt to locate substantive

evidence in support of the quantitative and

monetary figures and would check all relatedrecords thoroughly and use of statistical or

discovery-sampling techniques would assist him

to narrow down his inquiry.

Investigators may have no relevance with the


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with disclosure requirements. accounting conventions, disclosure requirements,

etc.

Q.21 DIFFERENTIATE BETWEEN CONTINUOUS

AND INTERIM AUDIT.

Continuous Audit Interim Audit

1. Object:

The object of continuous

audit is to show the trade

and fair view of financial

statement.

1. Object:

The object of

interim audit is to

determine and

check the profit or

loss for the period

under audit.

2. Report:

The report can be

presented at the end of

the accounting year

under continuous audit.

2. Report:

The reported can

be presented at

the and of the

interim audit and

it is submitted to

owners.

3. Period:

The continuous audit can

examine the accountsbooks and other record

for one whole year.

3. Period:

The interim audit

can examine theaccounts books

and other records

up to particular

date.

4. Scope: 4. Scope:


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There is detailed

checking of accounting

records under

continuous audit

There are no

detailed checking

of accounting

records under

interim audit.

5. Verification:

The continuous audit

requires verification of

assets and liabilities at

the end of financial year.

5. Verification:

In interim audit

the verification of

assets and

liabilities is made

at the tone of such

audit.

6. Trial Balance:

The trial balance is not

prepared at intervals in

continuous audit

6. Trial Balance:

The trial balance is

prepared and in

checking at the

time of interim

audit.

7. Fee:

The auditor can take high

fee according to time

period spent on audit

work

7. Fee:

The auditor can

charge less fee

due to less time

spent on audit

work.

8. Interest:

The third parties have

some interest in

continuous audit as it can

serve their purpose

8. Interest:

The third parties

have no interest in

interim audit as it

does not serve

their purpose.

9. Regular:

Continuous audit is a

regular feature of

business working. It goes

9. Regular:

Interim audit is not

a regular feature

of business

working. It is


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from year to year. conducted

occasionally.

10. Size:

Continuous audit is

possible for large-scale

business units due to

heavy work.

10. Size:

Interim audit is

possible in large

scale as well as

small scale

business units.

11. Goals:

The audit is conducted

for many purpose or

goals. It is legal duty to

carry out audit`

11. Goals:

The audit is

conducted for one

purpose or goal

only. The managerand owner can

determine the

goals.

CONTINUOUS AUDIT FINAL/COMPLETED AUDIT

1. Scope

In continuous audit there is detailed and

complete checking of accounts books Records

In final audit there is no detailed and complete

checking of accounts books.

2. Visit

The audit staff frequently visits and checks the

accounts.

The audit staff visits once and checks the

Business accounts.


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3. Time

The continuous audit is possible as and when

accounting entries recorded in books.

The final audit is possible only when all the

entries are recorded in the books of accounts.

4. Cost

The continuous audit is expensive than final

audit due to high audit cost.

The final audit is cheaper than continuous

audit due to less audit cost.

5. Check

The continuous audit can put more check on

the accounting employees.

The final audit can put less pressure on moral

value of the accounting staff.

6. Entity

The continuous audit is desirable for large-

scale business.

The final audit is desirable for small-scale

business

7. Continuity

The continuous audit may continue for whole

year with fixed or variable intervals

The final audit cannot continue for whole Year,

it is completed in one session

8. Control

Continuous audit can be started even if there

is poor system of internal control.

Final audit requires effective internal control.

9. Plans

In continuous audit the accounts are prepared The final audit is made after the end of year.


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in time so plans can made in time. Planning for future period becomes late.

10. Chance

The chance of errors and fraud are reduced to

no big time gap between accounting work and

audit.

The chance of error and fraud are there due to

sufficient time between accounts work and

audit.

11. Dividend

The management can declare interim dividend

due to continuous audit.

The management cannot declare interim

dividend as audit is completed as the end of

the year.

Documents

Differentiate Between