A third-party examination of a company’s financial records and reporting activities. An audit may be conducted for disclosure, compliance, taxation, legal or other purposes. The examiner will check for accuracy and full representation of financial activities and claims.
In the context of financial accounting, audits represent assessments of objectivity, by which the management of a company presents its financial statements. The auditor (the person carrying out the audit, no less) issues a report based on the results. Audits always entail an audit risk – the risk of the auditor providing false information or an inappropriate opinion, especially when the financial statements in question contain a material misstatement.
In terms of cost, accounts audits are defined as the process of substantiating the cost of production of any item based on accounts of the use of labor or materials by the company. The cost audit provides assurance that the cost accounting plan has been adhered to.
These systems must comply with generally accepted standards, established by the authorities regulating businesses. Such standards provide third parties with assurance that these statements are an objective view of the financial state of the company and the results of its operations.
Internal auditing focuses on helping different organizations attain their objectives. Results are achieved with the help of systematic methodology, intended for analyzing business activities, processes, and procedures with the aim of outlining organizational problems and preferred solutions. Internal auditors are professionals who work for organizations and perform auditing activities. Within organizational bodies, the scope of auditing is broad, involving issues such as investigating and deferring fraud, reliability of financial reporting, operational efficiency, compliance with regulations and laws, and safeguarding assets. Oftentimes, internal auditing involves assessing compliance with the procedures and policies of the entity. However, the internal auditors are not held responsible for the execution of the organizations’ activities.