Auditing

In English audit means examination of accounts. It is derived from Latin word

‘audire’. Its meaning is to hear. At the end of fourteenth century, auditors were to read
the status of accounting information in front of the kings or the rulers of that time and
in the later days the ‘audire’ turned as audit.
In the ancient days, the works of the auditors were mainly to check the arithmetical
accuracy. In the modem period, the auditors not only check the arithmetical accuracy but
also see whether the rules have been followed or not, whether the entries have been made
according to companies policies or not and whether complete and full accounting have
been maintained or not.
A.W. Hanson has defined auditing as “An auditing is an examination of such
records to establish their reliability and reliability of statements drawn from
them.”
The United Nations has given a comprehensive definition through the book
“Government Auditing in Developing Country’, that auditing refers to the
systematic, managed and objective oriented professional examination of the
books to improve that if any inefficiencies, undue expenses; and
mismanagement occur in the financial and administrative works of
government office and programs.”
In the word of L.R. Dickse, “Auditor is an examination of the accounting records
under taken with a view of establishing whether they correctly and
completely reflect the transactions to which they purpose to relate.”
In conclusion, it is an examination of the books of accounting data to ascertain correctness,
reliability, efficiency, etc. depending upon the financial data and statements.

Key Point Auditing is the systematic examination, review and

verification of the accounting records or books for the, accuracy
and reliability of accounting statements and reports.

3. Development of Auditing In Nepal

The Office of the Auditor General (OAG) was established with the appointment of
the first Auditor General as per the Constitution of the Kingdom of Nepal, 2015 B.S. Prior
to establishment of Office of the Auditor General, the institution named Kumari Chowk
Adda used to review the government accounts. It is assumed that Kumari Chowk
Adda was established in the year 6th Baishakh, 1828 B.S. with the aim of strengthening
administrative system after the unification of Nepal. It is also anticipated that there was
also existence of audit institution prior to unification. Since the fiscal year 2031/32, some
new forms were brought into use on the recommendation of Auditor General.
After the historical change of 2046, Constitution of 2047 and Auditing Act 2048 brought
changes in the field of auditing system of government office. According to Company
Act 2063, every business office should audit the accounts and present the audit report
in Annual General Meeting and Company Registrar’s Office.
4. Types of Auditing
i. Internal Auditing
Internal auditing is the act of examining the accounts and reporting by the employee
of same organizations considering the organizational objectives and activities. Purpose
of the internal audit is to assist the board of directors and managers in promoting sound
operations of the company and reasonably ensuring the objectives listed. At the same
time, purpose is to make timely recommendations for improvements to ensure sustainable
operating effectiveness of the internal control system and to provide a basis for review
and correction for the system. Office of the Treasury and Comptroller has the power and
rights to check the books of financial transactions as internal audit. For this government of
Nepal has established the office of the Treasury Comptroller in all 77 districts providing
responsibility of internal audit of government offices. This office uses the red ink to audit
the books. Final audit is conducted after the completion of internal audit. Following are
the main objectives of internal audit:
1. To detect the errors and frauds and prevent them.
2. To verify the books of accounts and statements continuously.
3. To give suggestions to the management in accounting and financial matter of the
organization.
4. To prepare basis for final audit.
5. To ensure the reliability in way of keeping accounting records.
6. To assist the management.

Key Point It is the act of examining the books of account by an internal staff to
ensure proper result and correction of error.

ii. Final Auditing

Final auditing is the auditing of presented financial statements and related documents,
done by independent body under the prevalent rules and regulations. This auditing is
done for a certain period, for example, Department of Auditor General conducts such
audit for the government offices. Business organizations are audited by the registered
auditors according to the provisions mentioned in the existing act and rules. In case of
companies, the auditor appointed by the Annual General Meeting conducts such audit.
Thus, final audit refers to the act of checking the books of accounts of all the
government office, constitutional bodies in corporation with the Office of the Auditor
General. This office uses green ink to audit the books of accounts.
In Nepal, Auditor General has got sole right to conduct audit of government organizations
under the provision of Auditing Act, 2048. The scope and functions of final auditing are
provisioned by the constitutions and laws. So, auditor is free to put any comments freely
on the irregularities. Therefore, the auditors conduct auditing on the basis of legality,
economy, efficiency, effectiveness, and reasonability.
Following are the main objectives of final audit.
a. To fulfil the legal requirement.
b. To examine the financial records and transactions as per prevailing financial rules
and regulation or not.
c. To detect and prevent the errors and frauds.
d. To show the real and fair financial position of the firm.
e. To evaluate the effectiveness, efficiency, economy and authenticity of the financial
transactions.
f. To encourage the firm to maintain public account ability and transparency, etc.

Key Point It is the act of examining the books of account by an individual

auditor to disclose the real and true financial position for a
certain period.
Differences Between Internal Auditing and Final
Auditing
Internal Auditing Final Auditing
Internal auditing is conducted by Final auditing in the company is done
the employees of the same by the auditor appointed by AGM.
organizations.
The duties and responsibilities of The duty of final auditors is to certify
internal auditors are fixed by the truth.
management.
Internal auditor works as the helper of The final auditor works as controller.
office chief.
In government organizations, the Auditor General or by the auditor
employees of the Treasury and stated by the office conducts
Comptroller Office conduct internal external auditing.
audit.
Internal auditing is done to correct Final auditing is done to find
mistake and for advice. mistake and take actions to the
faulty.
The faults found by internal auditor The faults found by final auditors
can be corrected before the final are forwarded for action.
auditing.
Internal audit is carried out on a External audit is carried out
detailed basis. generally on a random sampling
basis.

5. Importance of Auditing
There is increasing importance of auditing in both the sectors: government and
business. Auditing makes the accounts transparent, so creditability to business and
government from the people increases.
Some benefits are given below:
i. Detect and Prevent Frauds and Mistakes
Mistakes committed unintentionally or intentionally in the government and
businesses are found by the internal and external auditing. So personnel involved will
be cautious for doing such mistake in the future.
ii. Depicts Financial Position
Auditor checks the crucial financial documents of business and government; So, true picture of the financial position can be depicted. So helps and belief from
different sectors increase towards the organizations.
iii. Formulation of Plans
The data of the reports after auditing are true; so, the works of planning and budgeting work will be easy and valid.
iv. Helps in Tax Fixation
The tax can be fixed on the basis of audited accounts and government will have easiness to frame tax policies in the future.
v. Helps in Financial Administration of Government
Government can find defaulters through the internal and external auditing and forward action against them. This way financial administration becomes
sound and fair.
vi. Helps to Obtain Loan
Financial institutions or banks provide loan on the basis of audited financial statements. So an organization should make audit compulsorily to obtain loan.

i. Points to Remember
Detect and Prevent Frauds and Mistakes ii. Depicts Financial
Position
iii. Formulation of Plans iv. Helps in Tax Fixation
v. Helps in Financial Administration of vi. Helps to Obtain Loan
Government