Auditing Features and Objectives – Primary and Secondary

This post explains Auditing features. The audit is a systematic and scientific examination of the books of accounts of the business. The Audit is done by an independent person or group of people qualified to do Audits.

Auditing Features – Attributes of Auditing

An audit is the verification of the results shown by profit and loss accounts and the state of affairs confirmed by the balance sheet.

The audit is a critical review of the system of accounting and internal control.

The audit is done with the help of the vouchers, documents, information, and explanations received from the authorities.

The critical responsibility of Auditor is to ensure that the financial statements and reports are authentic and show a fair view of the state of affairs.

An auditor investigates, analyzes, reviews examines the documents supporting the transactions.

He examines the minute books of Directors, shareholders, memorandum of associations to ascertain the correctness of the books of accounts.

Various methods and procedures are used for performing the audit.

The audit is not only limited to an examination of financial records, but it also includes other areas like operational audit, process audit, tax audit, secretarial audit, efficiency audit, social audit and more.

It involved reporting by the auditor on the accounts examined by him and prepared as per GAAP (Generally Accepted Accounting Principles) principle and present accurate and fair view.

Objectives of Auditing

There are two main objectives of Auditing. Primary and Secondary objective, let us understand both the objectives one by one.

Primary Objective

The main objective of an auditor is to report to owners that the financial accounts give an accurate view of the situation of the company’s activities.

Secondary Objective

The secondary objective is also known as incidental objective as it is related to the fulfillment of the primary purpose.

The incidental objectives of auditing are as follows:

Detection and prevention of scams
Discovery and prevention of mistakes

Detection of material frauds and errors as an incidental objective of independent financial auditing flows from the primary aim of determining whether or not the financial statements give an accurate and fair view.

Frauds can take place due to the manipulation of accounts, and it is essential for the auditor to find the fraud so it can be prevented in the future.

Errors refer to an accidental mistake in the commercial data arising due to ignorance of accounting procedures.

Auditing Origin and Evolution – History of Auditing

In the early stages of civilization, the methods of maintaining accounts were very unrefined. The person used to listen to the accounts read over by an accountant to check them, he was known as the auditor.

History of Auditing

Auditing is as old as accounting, and there are signs of its existence in all ancient cultures such as Mesopotamia, Greece, Egypt, Rome, UK, and India.

Arthashastra by Kautilya detailed rules for accounting and auditing of public finances.

In olden days the key purpose of audits was to gain information about the financial system and records of the business.

However, recently auditing has begun to include non-financial subject areas such as safety, security, information system performance and environmental concerns.

With the non-profit organization and government agencies, there has been an increasing need for performing an audit, examining their success in satisfying mission objectives of the business.

Auditing Origin and Evolution

The auditing origin can be traced back to the 18th century, when the practice of large scale production developed as a result of the Industrial Revolution.

Systems of checks and counter checks were implemented to maintain public accounts as early as the days of ancient Egyptians, Greeks and Romans.

The last decade of the 15th century was a crucial period during which a great impetus was given to trade and commerce by Renaissance in Italy, and the principles of double entry bookkeeping were evolved and published in 1494 at Venice in Italy by Luca Paciolo.

This system of accounts was quite capable of recording all types of mercantile transactions.

The Industrial Revolution of England was another landmark in the history of trade and commerce.

The industrial revolution led to a significant expansion in the volume of trading transactions which compelled the use of more money, and the ordinary trader was enforced to combine with the partnership with others.

Consequently, a big enterprise was framed in the form of partnership firms and joint-stock companies.

This growth of business enterprises before and after the revolution accompanied an improved accounting system.

Besides British Companies made stockholders realize that an independent and impartial audit could well protect their interest.

Such developments had a direct effect on the evolution of the practice of auditing, but the audit of business accounts could not be standard until the 19th century.

A Royal Charter incorporated the Institute of Chartered Accountants in England and Wales on May 11, 1880. The key purpose of this incorporation was to prepare Auditors.

In January 1923, the British Association of Accountants and Auditors got established, and a person could be fully competent to work as a professional auditor after clearing this exam.

7 C’s of Effective Communication – Effective Communication Skills

Effective communication is very important for professional and personal success. This article will explain about 7 C’s of effective communication.

Correctness

Correctness in communication implies there are no grammatical errors in a message.

The sender should look that the message is exact, correct and well timed. There must be appropriate and correct language in the message sent.

The correct message has more influence on the audience or readers.

Courtesy

The word courtesy probably means kindness. Courtesy in message intends the message should show the senders expression as well as should respect the receiver.

The message send should be polite, judicious, reflective, and enthusiastic. Both the viewpoint of both the sender and receiver should be taken in mind.

Mainly it is focused on the audience. It is the part which gives the receiver a better position or a kind of comfort zone as far as entire communication is concerned.

The total amount of harassment in communication is ‘0′ then it is courtesy, if it is ‘100′, then the message is non-courtesy.

Clarity

Clarity emphasizes a specific message or goal at a time, rather than trying to achieve too much at once. It makes understanding easier.

The clear message makes use of exact, appropriate and concrete words. Clarity has to be in theme, background, volume, and sound.

Concreteness

Concreteness adds strength to the reason of message behind its communication.

During useful communication, concreteness is the total percentage of flexibility. Greater percentage means less concreteness and less percentage of flexibility intend high concreteness.

Concreteness strengthens the confidence. It builds a reputation.

Concrete messages are not misinterpreted and help to make decisions fast.

Completeness

The message conveyed should be complete. It should provide all the details needed by the readers.

The sender of the message should consider the receiver’s mindset and convey the message accordingly. It persuades the audience.

A complete communication always provides additional information wherever required. It leaves no question in the mind of the receiver.

Conciseness

Conciseness means what you want to convey in the least possible words without forgoing the other C’s of communication it is both time saving and cost saving.

It is non-repetitive in nature. It provides a short and essential message in limited words to the audience.

Consistency

It means that there should be a proper time gap between the message send and receive by the receiver and sender.

Consistency helps decision making on time.

Methods of Communication – Different Communication Methods

It is very important to understand the communication methods to convey your message correctly to other party, we are going to discuss some of the very important methods of communication like, verbal communication, oral communication.

Verbal Communication Methods

It is communication in which sender and receiver lie on pre-determined and standard ways of encoding and decoding.

Verbal communication is not possible in the absence of language. Verbal Communication is the dominant method of communication due to the highest reliability and effectiveness.

Oral Communication

For any organizational or non-organizational communication, words are the most important symbol.

In an organizational setting, most of the employees spend more than 50 percent of their time in some form of oral communication.

To communicate orally is very easy. Oral communication is useful, and you get instant feedback while expressing. However, there are some demerits also such as lack of proof, lack of authenticity and it is also very time-consuming.

Written Communication

There may be a suggestion system or dairies where written communication use. Written communication is in the form of a letter, circular or note.

With the invention of the internet, instant written communication facilitated.

There are authenticity and proof of future reference in written communication. However, it proves to be costly as well as there is a lack of secrecy.

Non-Verbal Communication Methods

Non-verbal communication is very crucial in both organizational as well as non-organizational settings. It does not include speech or any word spoken by the person.

A body movement may not by itself have a precise or universal meaning, but when linked with words, it may convey the correct sense.

Sometimes there may be a contradiction between verbal and non-verbal communication. Action speaks louder than words in the long run.

A manager who says one thing but acts differently will have less credibility, and his team will focus less on what he says.

“Credibility gap” may be defined as the difference between what one says and what one does.

Body Language

Body language is the conscious and unconscious movements and posture by which attitudes and feelings communicated.

It plays an essential role in communication. Some estimates disclose that speech only makes up about 20 to 30 percent of communication and rest depends upon the body posture.

In other words, body language known as ‘kinesics.’ Body language includes gestures, postures, head or it can also be the whole body.

Para-Linguistic

It is a kind of area of non-verbal communication that emphasizes body language.

It may define as the vocal features that supplement speech and add to communication but are not generally acknowledged to be part of the language system.

The capability to interpret para-language correctly consider as an important competency in both personal and professional settings.

Paralanguage is also known as Para linguistic. Various aspects of paralanguage include posture, eyes, hand movement, voice and more.

For example, Finnish is relatively slow speaking as compared to European languages. It mainly refers to a non-verbal mode of communication, which is used to modify meaning and emotions.

Space Language

The study of the application of distance between sender and receiver in the communication process is known as space language.

It is also known as ‘proxemics,’ every culture, country, and workplace has different space language among the members.

It is the study that explains how people treat their space and other people in their proximity. It is an essential category of non-verbal communication.

Knowing how to use your space and how others keep their space is critical in creating the right connections and leaving a good mark.

There are different zones in this kind of language, some of these are:

Intimate zone- minimum distance touch up to 18 inches
Personal zone- from 18 inches up to 4 feet
Social zone- from 4 feet to 12 feet
Public zone- from 12 feet onwards till it is audible or visible.

Sign/Symbol Language

Sign language is the most difficult of all. It is complicated to understand by an average person.

Sign language mainly uses manual communication to convey meaning, and this is almost similar to spoken but difficult to interpret.

Sign language should not be confused with body language, which is a kind of non-linguistic communication.

Advantages of Verbal Communication

Greater reliability and effectiveness
Less time taking
Economic
A universal language
Easiest form if you know the language

Disadvantages of Verbal Communication

No secrecy
Complex

Model of Communication – Elements and Process of Communication

The model of communication consists of different interaction steps. It is a pervasive and continuous process of feedback.

Elements involved in the Model of Communication

There are different elements involved in the model of communication which are as follows:

Sender

The sender is the most critical element of the communication process.

The sender is the person who contacts the other person with the goal of creating business relationships and passing the message.

In an organization, a sender can be anyone like a superior, subordinate, peer or any other person.

Message

A message is a physical form into which the sender encodes Information. It may be of any kind, written or oral.

Encoding

After the message has been sent then comes the encoding.

Encoding is the virtual processor in which a sender is wrapping a meaning in a transportable manner and understandable fashion.

It is the process of converting information into meaningful symbols.

In the case of using certain symbols and gestures, they should be meaningful. If the symbols are not useful, the message cannot be understood by the receiver correctly.

Channel

Message converted into symbols is transmitted by the sender through a channel like written in the form of a letter or electronic mail or spoken through personal contacts or telephone depending on the situation.

Receiver

It is an essential step in communication. The receiver is the person who gets the message of the sender.

He is also like the sender; he can be a subordinate, superior or any peer.

The receiver is the second most crucial element of this process. If this element is absent, the whole process will get disturbed.

Decoding

Decoding is the vice versa of encoding. It means translation of symbols encoded by sender so that the other person can clearly understand.

The receiver may misunderstand the message since the perception of the sender may be different from the opinion of the receiver.

Decoding should be meaningful so that the receiver understands the message in the sense which is intended by the sender.

Feedback

Feedback is the last and most crucial element of the process.

Feedback in communication is required to ensure that the receiver has received the message and understood it in the same insight.

The sender of the message will chalk out his action according to the feedback he receives from the message receiver.

Because of this, only the feedback is treated as an energizing factor, thereby changing the course of action in the communication process.