What are the three objective of auditing?

The table below presents generic examples of descriptive and normative audit objectives related to potential focus areas of audits of efficiency.

Focus area

Descriptive audit objective

Normative audit objective

Recognized efficiency improvement methods or frameworks

To assess the design and implementation of the recognized improvement framework.

To determine whether the design and implementation of the recognized improvement framework meets expectations or best practices.

Systems and practices
(controls)

To assess the efficiency of management systems and practices (controls).

To assess the effectiveness of management systems and practices (controls) at promoting the achievement of efficiency.

To determine whether management systems and controls that support the achievement of efficiency meet expectations or best practices.

Measurement of efficiency

To assess management systems and practices (controls) to measure and report on efficiency.

To determine whether management systems and practice (controls) to measure and report on efficiency meet expectations or best practices.

Efficiency results

To assess an organization’s (or a program’s) current operational efficiency performance.

To assess an organization’s (or a program’s) operational efficiency performance over time.

To determine whether an organization’s (or a program’s) operational efficiency performance meets benchmarks, standards, or key performance targets.

Regardless of the type of objectives that are selected for an audit of efficiency, their precise wording is very important. Objectives should always be written in a way that will allow auditors to provide informative conclusions to the audit report’s audience. In particular, auditors should avoid objectives that only yield yes/no answers. For instance, if the audit objective was “ to determine whether management has a system for achieving efficiency in hospital emergency departments,” the logical conclusion would be either “yes, management has a system” or “no, management does not have a system.” Neither conclusion would tell the reader anything about the quality or the efficiency of the system in place and would therefore not be informative.

Auditors can find examples of published objectives for recent audits of efficiency in our Focus on Efficiency publication.

Audit objectives are the statements that clarify the auditor’s intended audit targets while performing the audit. An audit is the process of proper examination of financial statements, records, and other documents of an organization. The main objective of the audit is to express the auditor’s opinion on the financial statements, i.e. whether they represent the true and fair view of the financial position of the organization or not.

Explanation

The objective of the audit process is to express an opinion on the financial statements of the company. The auditor conducts a proper examination of the company’s financial records and statements and provides reasonable assurance through their opinion that the company’s financial statements are free from material misstatements and frauds.

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Apart from the above, audit objectives also differ for different types of audits; for example, an external audit is done with the objective of verifying the financial statements of the company and provide an opinion thereupon, whereas internal audit is done to check the accuracy and functioning of the internal controls of the company relating to financial reporting, legal and policies related compliance, etc. Similarly, forensic audits are done to detect and control fraud within the organization. The statutory audit is done to ensure whether the company is compliant with all the rules or regulations.

Primary Audit Objectives

The primary objectives of the audit process are as follows:

• Internal Controls: One of the primary objectives of the audit process is to examine the accuracy and effectiveness of all the internal controls within the organization and find deviations, if any.
• Examining Financial Records: The main objective of the audit is to examine all the financial records of the company, including checking arithmetical accuracy of the books of accounts, verification, and substantiation of all the account balances.
• Authenticity and Validity: One of the main audit objectives also includes checking the authenticity and validity of transactions by looking at various proofs and substantive documents.
• Capital and Revenue Expenditure: Auditors also check whether a clear distinction is made between capital and revenue expenses in the financial books and records as a part of primary audit objectives.
• Existence of Assets and Liabilities: Auditors also look into the fact that whether assets and liabilities mentioned on the face of the balance sheet actually exist or not. They also verify the value at which the assets and liabilities are shown in the financial statements.
• Statutory Compliance: Auditors also aim to ensure themselves about the fact whether the company is in compliance with the rules and guidelines issued by the regulatory bodies or not.
• True And Fair View of Financial Statements: Finally, one of the most important primary objectives of the audit process is to give an opinion over the true and fair view of the financial statements.

Subsidiary Audit Objectives

The subsidiary audit objectives help auditors in attaining primary objectives or targets. Subsidiary audit objectives are discussed as follows:

• Detection and Prevention of Errors: While pursuing subsidiary audit objectives, auditors look for errors made due to imprudence or carelessness, or sometimes due to the unavailability of the information. There are different types of errors like errors of omission, errors of exclusion, standards, and compensating errors. Auditors check for the presence of such errors and identify what controls are there in the organization to prevent such errors.
• Detection and Prevention of Frauds: Frauds are different from errors as they are done intentionally, and the individuals indulged in frauds have some personal stake. Frauds include misappropriation of funds or products and manipulation or adulteration of the financial records. As their subsidiary objectives, auditors look for detecting and preventing these frauds so that they can examine financial records efficiently.
• Under or Over-Stock Valuation: Auditors, as a part of their subsidiary objectives, also check whether stock or inventory is properly valued in the organization. This objective can also be taken as a subset of detection and prevention of fraud.

Conclusion

The audit is an important process for all the organizations, and for some corporates, it is a mandatory requirement by law to get the external audit done once in a year. The auditors should always keep in mind primary and secondary or subsidiary objectives in mind while conducting audits as it will help them express their opinion over the true and fair view of the organisation’s financial position. Apart from external audits, companies should also look for appointing experienced internal auditors to keep a check on the organisation’s internal controls.

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This is a guide to Audit Objectives. Here we also discuss the definition and primary objectives of the audit process along with an explanation. You may also have a look at the following articles to learn more –

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