Auditing

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For other uses, see Audit (disambiguation).

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Accountancy

Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
Cost · Financial · Forensic · Fund · Management · Tax
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The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion on the person / organization/system (etc) in question, under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements - a concept influenced by both quantitative and qualitative factors.

Audit is a vital part of Accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business (see financial audit). However, recent auditing has begun to include other information about the system, such as information about security risks, information systems performance (beyond financial systems), and environmental performance. As a result, there are now professions conducting security audits, IS audits, and environmental audits.

In financial accounting, an audit is an independent assessment of the fairness by which a company's financial statements are presented by its management. It is performed by competent, independent and objective person(s) known as auditors or accountants, who then issue an auditor's report based on the results of the audit.

Such systems must adhere to generally accepted standards set by governing bodies regulating businesses; these standards simply provide assurance for third parties or external users that such statements present a company's financial condition and results of operations "fairly."

The Definition for Auditing and Assurance Standard (AAS) 1 by ICAI "Auditing is the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view ti expressing an opinion thereon"

1 Quality audits
2 Integrated audits
3 Audits vs. Assessments
4 Types of auditors
5 In Project Management
6 References
7 See also

Quality audits

Main article: Quality audit

Quality audits are performed to verify the effectiveness of a quality management system. This is part of certifications such as ISO 9001. Quality audits are essential to verify the existence of objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels, providing evidence concerning reduction and elimination of problem areas and are a hands-on management tool for achieving continual improvement in an organization.

To benefit the organization, quality auditing should not only report non-conformances and corrective actions but also highlight areas of good practice. In this way, other departments may share information and amend their working practices as a result, also enhancing continual improvement.

Integrated audits

In the US, audits of publicly-listed companies are governed by rules laid down by the Public Company Accounting Oversight Board (PCAOB). Such an audit is called an integrated audit, where auditors have the additional responsibilities of expressing opinions on the management's assessment of the firm's internal control and the effectiveness of internal control over financial reporting, based on their (the auditors') own assessment.

There are also new types of integrated auditing becoming available. Due to the increasing number of regulations and need for operational transparency, organizations are adopting risk-based audits that can cover multiple regulations and standards from a single audit event. This is a very new but necessary approach in some sectors to ensure that all the necessary governance requirements can be met without duplicating effort from both audit and ausit hosting resources.

Audits vs. Assessments

The difference between audits and assessments can be considerable or can be nothing at all.

As a general rule, audits should always be an independent evaluation that will include some degree of quantative and qualitive analysis whereas an assessment infers a less independent and more consultative approach.

Types of auditors

There are two types of auditors:

Internal auditors of internal control. To maintain independence, they present their reports directly to the board of directors or to top management. They provide functional operation to the concern. Internal auditors are employed by the organization they audit, their familiarity with the organization provides more insight into potential fraud and wrongdoing.

External auditors are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed-upon evaluations. Most external auditors are employed by accounting firms for annual engagements. They are called upon from outside the company.

In Project Management

Projects can undergo 2 types of audits^[1]:

Regular Health Check Audits: The aim of a regular health check audit is to understand the current state of a project in order to increase project success.
Regulatory Audits: The aim of a regulatory audit is to verify that a project is compliant with regulations and standards.

References

^ Cutting, Thomas (January 12, 2008). "How to Survive an Audit". PM Hut. http://www.pmhut.com/how-to-survive-an-audit. Retrieved December 13, 2009.