AUDITING & CORPORATE
                      GOVERNANCE
                           STUDY MATERIAL
                           SIXTH SEMESTER
                        CORECOURSE :BC6B13
                               For
                B.Com. (2017 ADMISSION ONWARDS)
                   UNIVERSITY OF CALICUT
                  SCHOOL OF DISTANCE EDUCATION
                   Calicut University P.O, Malappuram, Kerala, India 673635
                               342 A
                                    School of Distance Education
               UNIVERSITY OF CALICUT
               SCHOOL OF DISTANCE EDUCATION
               STUDY MATERIAL
               SIXTH SEMESTER
               B.Com.
               (2017ADMISSION ONWARDS)
               CORE COURSE : BC6B13
               AUDITING AND CORPORATE GOVERNANCE
                Prepared by:
                               Rajan P,
                               Assistant Professor of Commerce,
                               School of Distance Education,
                               University of Calicut.
            Auditing and Corporate Governance                           Page 2
                             School of Distance Education
                          CONTENTS
                     Module                    Page No.
                    Module 1                    4 - 29
                    Module 2                    30 – 68
                    Module 3                    69 – 80
                    Module 4                    81 – 92
                    Module 5                   93 - 106
         Auditing and Corporate Governance                Page 3
                                    School of Distance Education
                                       MODULE 1
                           MEANING AND DEFINITION OF AUDITING
                 The word audit is derived from Latin word audire which means to hear‚. Auditing is a
            critical examination of the records and books of account of a business by an independent qualified
            person for ascertaining the authenticity and the accuracy of entries appearing in the books of
            account and financial statement. Spicer and Pegler have defined audit as “ such an examination
            of the books, accounts and vouchers of a business as will enable the auditor to satisfy himself that
            the Balance Sheet is properly drawn up, so as to give a true and fair view of the state of affairs of
            the business and whether the profit and loss account gives a true and fair view of the profit or loss
            for the financial period, according to the best of his information and explanation given to him and
            is shown by the books and if not in what respect he is not satisfied.” Montgomery defined auditing
            as examination of the books and records of a business in order to ascertain or verify and report up
            on the facts regarding the financial operations and the results thereof.”
            ORIGIN AND EVOLUTION
                 The term audit is derived from the Latin word audire‚, which means to hear. In early days
            an auditor used to listen to the accounts read over by an accountant in order to check them.
            Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia,
            Greece, Egypt, Rome, U.K. and India. The Vedas contain reference to accounts and auditing.
            Arthasashthra byKautilya had emphasized the importance of accounting and auditing. The original
            objective of auditing was to detect and prevent errors and frauds. Auditing evolved and grew
            rapidly  after  the  industrial  revolution  in  the 18th  century  with  the  growth  of  the  joint  stock
            companies the ownership and management became separate. The shareholders who were the
            owners needed a report from an independent expert on the accounts of the company managed by
            the board of directors who were the employees. The objective of audit shifted and audit was
            expected to ascertain whether the accounts were true and fair rather than detection of errors and
            frauds. In India, the companies Act 1913 made audit of company accounts compulsory with the
            increase in the size of the companies and the volume of transactions. The main objective of audit
            shifted to ascertaining whether the accounts were true and fair rather than true and correct. Hence
            the emphasis was not on arithmetical accuracy but on a fair representation of the financial efforts.
            Auditing and Corporate Governance                           Page 4