AUDIT OF SOLE PROPRIETORSHIP

Q.1 What important points should be kept in mind while conducting audit of a sole proprietor, partnership firm?
Ans This audit comes under the category of private as no act makes it obligatory for a sole proprietor to get its accounts audited. He can go for audit if he feels that there are many advantages of getting accounts audited.
The business with only one proprietor is called sole proprietorship or sole trader. Generally the size of such business is small and it is managed by owner with family member or with limited member of employees. However, if the number of employees is more, the owner can think of audit to keep control/check on staff.
In brief features of such audit are given below:
(i) Nature of audit: - is optional as there is no legal binding for audit.
(ii) Scope of audit: - would depend upon the agreement between owner & auditor.
(iii)Appointment, remuneration, removal of auditor would depend upon the wishes of owner.
(iv) Rights, duties, liabilities of auditor would depend upon the terms and conditions of agreement between owner and auditor as no statute comes in between.
(v) Audit methodology and submission of audit would depend upon scope of audit and agreement between owner and auditor.
(vi) Audit certificate: - At the end of audit the format/language of audit certificate would depend upon object of audit and scope of audit.

Audit of Partnership Firm

The scope of business in case of a partnership firm is larger than a sole trader. The scope of audit work is determined by an agreement as audit of a partnership firm is not obligatory under any act. However, partner may agree for audit in the partnership deed executed and signed by all partners. If such agreement provides

for audit, auditor has to see such agreement for the scope of audit and his rights, duties & powers. However, audit should see following aspects with reference to audit work.
1. Determination of scope of work and his rights, duties, remuneration, audit certificate to be given at the end and submission of audit report.
2. Partnership deed: - Auditor has to go through the partnership deed for knowing key points agreed between partner as well as scope of audit work.
3. Partnership Act :- Auditor must understand the main provisions of the partnership act.1932.
4. Acquaintance with business :- Audit should get himself acquainted with the type of business, type of transactions, nature of assets and liabilities
5. Audit work/program:- after getting information about points mentioned above, he has to prepare himself for audit and prepare audit program and then proceed to checking of books.
6. Checking of final accounts :- After completing audit work, he has to check final accounts i.e. profit & loss account and balance sheet and has to ensure that they have been prepared in accordance with accepted principles of accountancy.
7. Audit Report :- As per the terms of his appointment and keeping in view his scope of audit work, he has to submit audit report and give audit certificate in the manner agreed between firm and auditor.