1. Accounting System
The function of audit is to study accounting system. It can be stated as a series of tacks in an entity by which transaction ahere processed as a means of maintaining financial records.
Such a system should recognize, calculate, clarify post summarize and report transactions. The auditor should understand the accounting system in operation in order to determine the nature timing and extent of other audit procedures.
2. Internal Control
Internal control is a function of auditing. Internal control is a process, which determine that management policies are carried out and accounting principles are followed. This function helps to safeguards assets, location and prevention of errors and frauds. Moreover the management is able to prepare reliable financial statements in time. When the auditor notes that he can rely on internal control, the audit procedure may be less extensive. The effectiveness of internal control is to be determined by an auditor.
Vouching is the function of auditing. An auditor can inspect the document, which support and prove the business transactions. The data amount and other details are checked. All entries in books of accounts are made on the basis of relevant vouchers. This function is essential to determine the accuracy of accounting records.
4. Arithmetical Accuracy
I is a function of auditing to check the arithmetic accuracy of account books and books and other papers. The audit staff verifies the figures. The errors and fraud are discovered. The management can take steps to rectify the mistakes. The responsibility of fraud can be fixed. This function helps the auditors to show true and fair view of accounting statements.
5. Capitals and Revenue
It is a function of auditing to make different between capital and revenue items. The revenue items are compared to determine income. The capital items are compared to note the financial position of any business. The income and expense relating to many years can be divided into current and coming years.
6. Verification As Assets
The verification of assets is a function of auditing. Verification is concerned with determination of value, ownership, possession and any charge on the assets of any business. The auditor can check the existence of asset. The documents and books can show the purchase price. If any loan is taken on security of an asset, such information can be collected. It is duty of an auditor to verify these assets.
7. Verification of Liabilities
The verification of liabilities is a function of auditing. The auditor can verify the liabilities from the books of accounts. The auditors must receive a certificate from management that all liabilities are included in the balance sheet. The auditors can write letters to creditors for verification of liabilities.
8. Valuation of Assets
The valuation of assets is a function of auditing. The auditors can apply accounting conventions and principles to examine and test the values of assets. The management calculates the value to assets. The auditor must critically check the assigned values. He can get help from technical personnel.
9. Valuation of Liabilities
The valuation of liabilities is a function of auditing. The value of liabilities is stated in the balance sheet. The management can examine the value on the basis of dealing made. The auditor can examine the value of liabilities from books of accounts and other papers. The auditor can confirm the value from outside sources. Independent experts should determine the value of contingent.
10. Legal Requirements
The functions of auditing are to follow the legal requirements. There are various laws like companies ordinance 1984. Income tax ordinance 1979 and stock exchange rules 1971. It is the duty of auditor to check that financial statement are prepared under the legal requirements. The auditor can note this point in the report that management has followed the legal formalities.
The reporting is a function of auditing. It is the duty of auditor to submit his opinion in writing. The report may be clean or conditional. An auditor is an independent person. If he is satisfied about true and fair view, he can present clean report in case of some weakness he can give qualified report.