The relationship between auditing and law is very close one. Auditing involves examination of various
transactions from the view point of whether or not these have been properly entered into. It necessitates
that an auditor should have a good knowledge of business laws affecting the entity. He should be
familiar with the law of contracts, negotiable instruments, etc. The knowledge of taxation laws is also
inevitable as entity is required to prepare their financial statements taking into account various
provisions affected by various tax laws. In analysing the impact of various transactions particularly from
the accounting aspect, an auditor ought to have a good knowledge about the direct as well as indirect
tax laws.Auditing and Law
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