## What is Audit?

Audit is an independent examination of financial information of any entity — whether profit-oriented or not, and regardless of size or legal form — conducted with a view to expressing an opinion on the financial statements.

### Six Things the Auditor Must Ensure

Check	What It Means
Books → Entries	FS drawn up from actual entries in the books of accounts
Entries → Evidence	Each BoA entry supported by sufficient & appropriate evidence
Completeness	No BoA entries omitted during compilation
Clarity	Information is clear and unambiguous
Classification	Amounts properly classified, described & disclosed per accounting standards
True & Fair View	FS present a true & fair picture of results, assets, and liabilities

### Management vs. Auditor: Who Does What?

Party	Responsibility
Management	Preparation & presentation of Financial Statements
Auditor	Expressing an opinion on FS via a written Audit Report

This distinction is fundamental — the auditor does not prepare the FS.

### Interdisciplinary Nature of Auditing

Auditing is not an isolated discipline. It draws knowledge from:

Discipline	Why Relevant
Accounting	FS is the output of the accounting process; audit reviews it
Law	Auditor must know business laws affecting the entity
Economics	Understanding the client's overall economic environment
Behavioural Science	Human behaviour knowledge needed to discharge duties effectively
Statistics & Mathematics	Statistical sampling; mathematical verification of inventories
Data Processing	EDP/IT auditing is a growing sub-discipline
Financial Management	Ratio analysis, funds flow, capital budgeting
Production/Operations	Understanding client's production, cost systems, and marketing

Worked example

### Example 1

Tracing the evidence chain: An auditor examining a manufacturing company finds entries for raw material purchases in the BoA totalling ₹20 lakhs. The auditor traces these back to purchase invoices, goods receipt notes, and payment vouchers — verifying the three-link chain: FS figure ← BoA entry ← supporting documentary evidence. All three must be consistent.

### Example 2

Management prepares, auditor opines: Management reports revenue of ₹50 lakhs for the year. The auditor's role is NOT to calculate or prepare this figure. The auditor examines whether it is supported by invoices and contracts, whether it is complete (no omissions), and whether it is correctly classified as revenue in the FS — then forms an opinion.

⚠️ Common exam mistakes

Confusing management's role with the auditor's role — management prepares the FS; the auditor only examines and opines on them.
Assuming audit applies only to large or profit-oriented entities — audit applies to any entity regardless of size or profit motive.
Thinking the auditor certifies that documents are genuine — the auditor relies on documents as evidence but is not an expert in document authentication.
Treating auditing as purely an accounting subject — it is interdisciplinary, drawing from law, statistics, behavioural science, and more.

Bare-Act text Definition of Audit · ICAI Study Material / SA 200 · click to expand

An audit is an independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.

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Nature and Definition of Audit

Worked example

⚠️ Common exam mistakes