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UPMSP Vocational Accountancy & Auditing study materials
UPMSP Vocational Accountancy & Auditing study resources

UPMSP Vocational Accountancy & Auditing: Auditing Concepts, Objectives and Types

UPMSP Vocational Accountancy & Auditing · Work through your exam, one topic at a time.

All guide sections

Auditing Concepts, Objectives and Types

What this domain tests

This domain tests the meaning and objectives of audit, the distinction between primary and secondary objectives, the various types of audit, and the statutory framework for company auditors under the Companies Act, 2013.

Core rules

  • Auditing is the independent examination of financial information, with a view to expressing an opinion on whether it gives a true and fair view.
  • Primary objective: reporting on the truth and fairness of the financial statements. Secondary objectives: detection and prevention of errors and fraud, and detection of misappropriation of assets.
  • Types of audit: statutory, internal, independent/external, government, tax, cost, management, operational, performance, secretarial, forensic and continuous audit.
  • Companies Act, 2013: appointment under Section 139 (five years for an individual auditor, ten years for a firm), mandatory rotation under Section 139(2) for listed and prescribed classes of companies, qualifications and disqualifications under Section 141, and powers and duties under Section 143.
  • Disqualifications under Section 141 include a body corporate, an officer or employee of the company, a person indebted to the company for more than ₹5 lakh, and a person holding securities of the company. Professional misconduct by a chartered accountant is also a bar.

Worked example

A chartered accountant is offered the statutory audit of a company in which his partner holds 200 equity shares of ₹10 each. Section 141(3)(d)(i) disqualifies a person who, or whose partner or relative, holds any security of the company, subject to the limited proviso for a relative's holding of face value up to ₹1 lakh. The size of the holding is irrelevant for the auditor and the partner, so the firm must decline the appointment unless the holding is disposed of before appointment.

Traps

Reversing the primary and secondary objectives; assuming a small shareholding is acceptable; treating internal audit as a substitute for statutory audit; stating that rotation applies to every company regardless of size.