Economic resolution in each culture must be stand upon the information obtainable at the time the conclusion is prepared. For instance, the conclusion of a bank to compose a loan to a business is based upon preceding financial affairs with that business, the financial condition of the company as imitated by its financial report and other issue.
If conclusions are to be steady with the goal of the judgment makers, the information used in the decision process must be dependable. Defective information can cause ineffective use of resources to the damage of the society and to the decision makers themselves. In the lending decision model, presume that the barfly composes the loan on the basis of confusing financial report and the borrower Company is eventually unable to repay. As a result the bank has lost both the primary and the interest. In count, another company that could have utilized the funds effectively was deprived of the money.
As the world become more multifaceted, there is an better likelihood that untrustworthy information will be provided to decision makers. There are several reasons for this: isolation of information, capacious data and the existence of complex exchange transactions. As a means of conquering the difficulty of unreliable information, the decision-maker must build up a method of assuring him that the information is adequately reliable for these decisions. In doing this he must think about the cost of acquiring more consistent information against the expected profit. A universal way to attain such dependable information is to have some type of proof (audit) performed by independent personnel. The audited information is then used in the conclusion making process on the supposition that it is logically complete, truthful and impartial.
The word audit is resulting from the Latin word ‘audire’ that means attend to. Near the beginning days an auditor used to list in to the accounts read over by an accountant in order to check them. Auditing is elder as accounting. It was in use in all antique countries such as Greece, Egypt, India, U.K. Rome, Mesopotamia. The Vedas include reference to accounts and auditing. The original objective of auditing was to detect and prevent mistake and frauds. The word fraud means the willful twisting made with an target of misleading others. It is a purposeful mistake committed in the accounts with a sight to get private gain. In accounting, fraud means two things.
a. Defalcation involving appropriation of either cash or goods; and
b. Fraudulent exploitation of accounts not involving defalcation.