What is an Audit – Auditing Definition
An audit or auditing ensures that the accounts reflect a true picture of the economic reality of a business. We may also define the auditing or audit as: “An audit is a process of analyzing the company, its finances or its operation, conducted by an independent provider.
Having your business audited can diagnose any problems you may have in order to find ways to solve them. Auditing is a process used by an executive who wishes to identify potential problems in the finances or conduct of his business, in order to improve himself.
It is therefore a question of verifying that there is neither fraud nor omission that can alter the economic reality of the company. By extension, the audit aims to ensure compliance of documents, practices, computer systems, etc. commonly used rules and procedures.
The difficulty of this work of assessment (distance to the subject, complexity of the accounting rules) pushes companies to call upon an external and independent service provider: an audit company or an auditor.
Role of the Auditor
- The auditor is a professional who is trained to review the accounting data provided by the audited company and to verify that this information accurately reflects its activities.
- The auditor’s job is to write a report after the audit. This document will determine the level of accuracy and clarity of the organization’s accounting.
- For example, he will check that the accounting movements made by the company appear in the General Ledger. Or that the recorded transactions actually correspond to the deliveries.
- Audit work, just like management control, allows the company to analyze its own practices, to diagnose any problems, to consider solutions to continue to innovate.
The Importance of Auditing
- A company must ensure that its resources are used efficiently, in order to ensure its own financial health.
- It is also about meeting the commitments made to customers, suppliers, creditors and, if there are any, employees.
- Companies are supposed to comply with the legal rules, especially in the field of labor law and payment of various taxes.
- And this is the auditor’s entire mission: to provide a professional diagnosis of the financial status of the company.
- This report will then serve as a notice of trust to future creditors or investors of the company.
Different types of Audit
There are different types of audit depending on the purpose of the engagement and the type of stakeholder. Depending on the speaker, there is talk of internal audit or external audit:
- The internal audit activity is “performed by a department dependent on the management of the company and independent of other services” as defined by the French Institute of Auditors and Internal Controllers (IFACI).
- The external audit activity, as we mentioned above, involves an external and independent service provider to the company.
In addition, there are three other types of audit depending on the objective to be achieved:
- The management audit, very useful to analyze the performance of a given service or to be aware of a fraud
- An operational audit will modify the operation of a company to improve the productivity of certain services and thus find better ways of working. This will require the intervention of specialists.
- Finally, the financial audit ensures that the accounting standards are respected and that the company’s financial information is properly transmitted. This action is often conducted by an auditor.
I’m sure now after reading this article; you will be in a position to get a better idea about auditing especially the job of auditor. What actually auditors do and how auditing helps to show case the true shape of company financial accounts.
Techniques of Audit
There are different audit techniques that allow you to analyze in different ways some process or element of the company. It is based on methods through which the auditor obtains the evidence to perform the audit report, where it will capture the result of the audit.
With this technique we can observe the most general and remarkable characteristics of the company that will be further studied in depth.
The analysis technique is based on the grouping of different elements on the same account. There are two types:
- Analysis of movements
- Balance analysis
It consists in gathering the necessary information through interviews with the employees of the company.
It is based on expressing the statements obtained through the investigation.
It consists of the verification of the facts of the company through the documentation of the company.
Those tests that are carried out after the balance has been made but before sending the financial statements so that everything is correct
This technique is based on physically corroborating the existence of some products, material goods, documents, operations carried out.
It is confirmed that the data found in the accounting records are correct and that they coincide with the facts that the auditor has observed.
It consists of physically seeing different situations and facts to see if the established behavior patterns are being met. It is used to see how productive processes work.
It is based on the review of the arithmetic operations of the accounts and certain operations to verify if the results obtained from the calculation are reasonable.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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