audit

(noun)

An independent review and examination of records and activities to assess the adequacy of system controls, to ensure compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies, or procedures

Related Terms

Examples of audit in the following topics:

  • Additional Items: Auditor and Management Reports

    • When an audit is performed on a company, the auditor issues a formal opinion in the form of an auditor report.
    • If a company has an audit performed, whether by an internal auditor or an outside auditor, the auditor issues a formal opinion.
    • Please note that the Securities and Exchange Commission requires an audit by an outside auditor.
    • Limitation of scope occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform to GAAP.
    • Auditor reports stem from an internal or external audit of the company's financial statements.

  • Uses of Financial Reports

    • Although laws differ from country to country, an audit of financial statements of a public company is usually required for investment, financing, and tax purposes.
    • These are usually performed by independent accountants or auditing firms.
    • Results are summarized in an audit report that either provides an unqualified opinion on the financial statements or qualifications as to its fairness and accuracy.
    • The audit opinion on the financial statements is usually included in the annual report.
    • Since audit reports tend to be addressed to the current shareholders, it is commonly thought that they owe a legal duty of care to them.

  • Preparing Financial Statements

    • Preparing financial statements requires preparing an adjusted trial balance, translating it into financial reports, and auditing them.
    • Once the company prepares its financial statements, it will contract an outside third party to audit it.
    • An audit is an independent review and examination of records and activities to assess the adequacy of system controls, to ensure compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies, or procedures.
    • It is the audit that assures outside investors and interested parties that the content of the statements are correct.
    • When an audit is completed, the auditor will issue a report with the findings.

  • An Expanded Equation

    • Preparing financial statements requires preparing an adjusted trial balance, translating that into financial reports, and having those reports audited.
    • Once the company prepares its financial statements, it will contract an outside third party to audit it.
    • An audit is an independent review and examination of records and activities to assess the adequacy of system controls, to ensure compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies, or procedures.
    • It is the audit that assures outside investors and interested parties that the content of the statements are correct.
    • When an audit is completed, the auditor will issue a report with the findings.

  • Full-Disclosure Principle

    • As an accountant, the full disclosure principle is important because the notes to the financial statements and other financial documents are subject to audit.
    • To obtain an unqualified (or clean) opinion, one must have an intrinsic understanding of the full disclosure principle to insure sufficient information for an unqualified opinion on the financial audit.

  • Reporting Current Liabilities

    • An aging schedule showing the amount of time certain amounts are past due may be presented in the notes to audited financial statements; however, this is not common accounting practice.

  • Gain Contingencies

    • Materiality is a concept or convention within auditing and accounting that relates to the importance/significance of an amount, transaction, or discrepancy.

  • Standard-Setting Groups: SEC, AICPA, and FASB

    • It sets ethical standards for the profession and U.S. auditing standards for audits of private companies, non-profit organizations, federal, state and local governments.

  • Cash Controls

    • It is also generally required that the business audits its books and review its internal controls at least annually.

  • Ethical Considerations

    • SOX -- also known as the "Public Company Accounting Reform and Investor Protection Act" in the Senate and "Corporate and Auditing Accountability and Responsibility Act" in the House -- is a United States Federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms.