Auditing is a systematic examination of the books and
records of a business or other organization in order to
ascertain or verify and to report upon the facts regarding its
financial operation and the result thereof’.
R.B. Bose has defined as ‘Audit may be said to be verification
of the accuracy and correctness of the books of accounts by
independent person qualified for the job and not in any way
connected with the preparation of such accounts’.
The word ‘audit’ is derived from the Latin Word ’auditure’
which means to hear . Formerly a person responsible for
maintenance of accounts went to some impartial and
experienced person, who used to check these accounts and
express his opinion about its correctness. These experienced
persons were known as ‘auditors’.
The role of the internal auditor normally involves
checking, verifying and reporting on:
1. Financial information required by the management.
2. Costing information required by the management for
example budget, variance, cash forecasting, etc.
3. Effectiveness of internal control system, preventing loss of
assets or manipulation of accounting data.
4. Efficiency of companies management particularly in the way
in which it formulates its plans, policies and decisions.
A person or a group of persons deputed to audit
the accounts is/are called internal Auditor/s. These
persons may be an internal part of the organization
(employees) or can be hired from outside agency
to audit the accounts. Internal auditing of accounts
is not compulsory. The internal Auditor may not be
registered Chartered Accountant(C.A.).
An auditing is not only useful to the management but it
also ensure socio-economic benefits.
The following are the advantages of auditing :
Benefits to the Management:
1. It detects the errors and frauds.
2. It keeps employees more alert.
3. It reduces the wear and tear of assets and also helps in
better utilization of assets.
4. It increases profitability.
5. It reduces the cost due to better management, efficiency
6. It points out management’s weakness and recommends
better accounting systems.
Benefits To The Share Holders and General Public:
1.This tells the public whether is making sufficient
profits or not.
2. In its reports, it gives the information like earning per
share, cash earning per share ,debt equity ratio, price
equity ratio, comparative balance sheets, comparative
income expenditure statements, etc. This helps public
and share holders in deciding whether to invest n the
company or not.
3.The public gets goods and services at reasonable
Benefits To The Governments:
1. The bills at cost plus profit submitted to the government
are settled without dispute.
2. The government can fix prices of essential commodities.
3. The subsidies can be decided after studying the cost and
selling price government wants to fix.
4. It helps in fixing the export price for commodities.
5. The income tax and other tax authorities accept the
reports submitted by the auditors.
Through auditing has many advantages but the effectiveness of this
department depends on the following limitations:
1.Qualification: The auditors must be well qualified and they must
know their job perfectly.
2.Experience: The prior experience of auditing is very essential to
audit the accounts accurately.
3.Independence: The auditor must be extended independence.
That is why usually they are hired from outside. Even if internal
auditor/employee are to be used then he must not work under
accounts department. In fact he should report to General Manager
or Director of the company.
4.Access To Records: The auditors must have an authority to have
any or all the documents, files, etc. for the purpose of auditing.
5.Safety: The auditor must not feel unsafe or submitting adverse
reports on the organization in general or any department in
6.Adequate Staff: There should be adequate number of persons to
External Audit/Statutory Audit/Compulsory Audit:
It is a compulsory audit done by outside agency at least once, at least once, at
the end of the financial year. As per SEBI guidelines public limited companies are
required to have the companies accounts after every three months. Only
registered Chartered Accountant Auditors are authorized to audit the accounts
and sign it.
The following are the reason to have statutory auditing:
1.All public limited companies must have their accounts auditing by external
2.All government departments and Government owned companies must get
their accounts audited from external Government approved auditors(usually A.G.
3.All Government funded organizations, corporations, societies; corporation
must get their accounts audited.
4.All registered societies, which collect donations from public, must get their
accounts audited from external auditors.
5.Any company which intends to borrow money from government or financial
institutions must get their accounts audited.
6. Any other company may be asked to get their accounts audited from external
The auditing for hotels differ from the type, size of the
hotel. The degree of mechanization has a great impact on
the auditing of hotel. The auditors must examine the system
or internal check in vogue with regard to the ordering,
purchase, receiving, storing, issuing, etc. He is also expected
to check the system of book and record keeping in vogue in
the hotel. The cash books receipt and payment side must be
checked and tallied with check books. All cuttings,
overwriting, discount, allowances, missing checks, etc. must
be examined. All receipts must be made against the proper
printed and signed receipts and should be entered either in
the sales summary sheets or cash book.
As far as possible no cash payments should be made
expect payments made by petty cashier. Salaries and
wages must be paid by cheques after receiving the
bills from personal department and attendance from
Time Office and the concerned departments. Cheques
should be issued to suppliers against their bills along
with the supply order, invoice, store keeper’s receipt,
etc. please also refer to previous chapter for more
NIGHT AUDITING IN HOTELS:
Each hotel appoints a night auditor who works
independently and reports to either Chief Accountant or
to General Manager. His duty starts after 9 p.m. and
works until next day morning. Due to his night working
hours he is termed as Night Auditor. He audits the
accounts of Front Office Cashier.
He performs the following duties:
1.Reconcile all sales statements submitted by the various
departments cashiers to front office cashiers throughout the day.
2.He verifies all the debit and credit vouchers at Front Office Cash.
3. Checks guest folios.
4. Verifies front office cashier reports.
5. In some hotels he is also required to post the un posted vouchers
at Front Desk and also debit all rooms with the day’s room tariff.
6.In case of Cash Register Machine (like N.C.R. Cash Registrex, etc.)
He clears the machine.
7.Prepare a statement of bills for those rooms whose bill crosses a
8.He audits night receptionist’s room reports.
9.He checks the accuracy of accounts like over charging, under
charging, cutting, discounts, allowances, etc extend to guests.
10. He checks the City Ledger Account before transferring to
Account Department for collection of bills.
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