In second auditing and assurance standard, objective and scope of audit of financial statement has been explained. All the audit of balance sheet and profit and loss account will have specific objectives and scope. Following is the objectives and scope of audit.
Objective of Audit of Financial Statements
1. Main objective of audit of financial statement is to make the financial statements relevant to statutory requirements. It means, if there is any rule of law relating to financial statements, financial statements should follow it. For example, there is specific format of balance sheet of bank. If a new bank, who made first balance sheet did not make under this format. His auditor can note this point and convert it in the valid format before next step of audit because valid format of balance sheet is statutory requirement and it must be checked by auditor.
2. Second of objective of audit of financial statement is to tell whether company's financial statements are showing true and fair view of the financial position of company or not. It everything is OK, CA will give his opinion that company's financial statements are showing true and fair view of the financial position of company.
3. One of main aim of audit of financial statement to remember management that they should do their duty honestly. We know, to make the financial statements is the duty of management but if it is not audited by independent, management will not make it honestly and it is the chance, there will be the mistakes and frauds through false information in financial statement. Audit will become always police for accounting department. As per law, audit of company is compulsory.
Scope of An Audit
1. Whole scope of audit of financial statements will be fixed by auditor.
2. Auditor will increase his scope up-to the level where he will satisfy that given information in the financial statements are reliable and sufficient. It means, he can go everywhere for collecting correct information. For example, if he found something incorrect in sending the EPF, the can contact directly the Employee's Provident Fund Organisation for knowing the truth regarding this. We know, police has to safeguard the public property. CA is also policeman who has to safeguard company's property.
3. Auditor can test the internal control system. It is the understand scope of auditor. Auditor can also verify each and every transaction by appointing audit assistant if he does not satisfy from sample.
4. When a company has made plan to do fraud through company accounts, it will become difficult for company to discover it. At that time, auditor's opinion on the financial statement will come only after examination the facts. If still there is undiscovered fraud, auditor is not responsible because auditor has to depend on some information, if all are false under master plan and we can not say auditor's report as false statement but auditor should never give his opinion in case the of suspicions.
5.It is not the scope of auditor which make him compulsory to know all the technical knowledge relating to any product or asset. But auditor can help from expert team of technical know-how for collecting knowledge regarding the financial statement's assets.
Related : Auditing and Assurance Standard 1