- Main objects:- To verify the fair view and correctness of the accounts, balance sheet and profit and loss account as per the companies act and other related laws.
- Secondary Objects:- As given below:-
a) Detection and Prevention of Errors:- as follows:-
- Error of Omissions:- When a transaction is incorrectly recorded either wholly or partly. For example – wrong casting, wrong calculations, wrong postings and wrong carry forwards etc. In this case the trial balance may not be affected but the error can be discovered when the transaction is vouched or checked.
- Error of Commission:- When transaction has recorded but has been wrongly entered in primary books or ledger posting etc. For example, purchase invoice for Rs.1480/= is posted for Rs.1840/=. This type of errors may be intentional or unintentional.
- Error of Principles:- When entries are not passed according to the fundamental principles of accountancy. For example, wrong allocation of expenditure between capital and revenue, ignoring the outstanding assets and liabilities etc. Such errors may be committed either intentionally or unintentionally.
- Compensating Errors or Off-setting Errors:- When an error is counter balanced or compensated by any other error or errors so that the net effect becomes nil. For example, if A’s Account was debited for Rs.10/= instead of Rs.100/= and B’s account was debited for Rs.100/= instead of Rs.10/=. Through proper scrutiny of ledger accounts, the errors may be detected.
b) Detection and Prevention of Frauds:- Frauds can be detected as follows:-
- Fraud in case of Cash:- can be detected as follows:-
- Omitting to enter cash received.
- Entering less cash received than the actual receipt.
- Making fictitious entries on the payment side of the cash book.
- Entering more amount on the payment side of cash book that actual payment.
2. Misappropriation of Goods:- To prevent this type of fraud, a proper type of accounting control must be exercised on sales, purchases and stock taking etc.
3. Fraudulent Manipulation of Accounts:- This class of fraud is found very less but if it happens, this is because of Director, Managers and top responsible persons only. These frauds can be classified as follows:-
- Showing more profit so that they can get more commission etc.
- Showing less profit so that they can purchase shares in the market at lower price.
- Showing less profit to avoid income tax.
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