Professional Documents
Culture Documents
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
Ownership 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 environmental performance. As
a result, there are now professions conducting environmental audits.
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."
Contents
• 1 Quality audits
• 2 Integrated audits
• 3 Types of auditors
• 4 See also
• 5 External links
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.
• Internal auditors are employees of a company hired to assess and evaluate its
system 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 compan
Financial audit
From Wikipedia, the free encyclopedia
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
Ownership equity
Retained earnings
Auditing
Financial audit
GAAS
Internal audit
Sarbanes-Oxley Act
Big Four auditors
Fields of accounting
Cost • Financial • Forensic
Fund • Management • Tax
This box: view • talk • edit
Contents
• 1 Purpose
• 2 History
o 2.1 Audit of government expenditure
• 3 Governance and Oversight
• 4 Stages of an audit
o 4.1 Planning and risk assessment
o 4.2 Internal controls testing
o 4.3 Substantive procedures
o 4.4 Finalization
• 5 Commercial relationships versus objectivity
• 6 Related qualifications
• 7 See also
• 8 References
[edit] Purpose
Financial audits exist to add credibility to the implied assertion by an organization's
management that its financial statements fairly represent the organization's position and
performance to the firm's stakeholders (interested parties). The principal stakeholders of a
company are typically its shareholders, but other parties such as tax authorities, banks,
regulators, suppliers, customers and employees may also have an interest in ensuring that
the financial statements are accurate.
The audit is designed to reduce the possibility that a material misstatement is not detected
by audit procedures. A misstatement is defined as false or missing information, whether
caused by fraud (including deliberate misstatement) or error. "Material" is very broadly
defined as being large enough or important enough to cause stakeholders to alter their
decisions.
Audits exist because they add value through easing the cost of information asymmetry,
not because they are required by law. For example, a privately-held company that does
not issue securities on a public exchange might engage a firm to audit its financial
statements in order to obtain more desirable loan terms from a financial institution or
trade accounts with its customers. Without the audit, the lending party would not have
assurance as to whether or not the company's financial position is accurate. In turn, the
lender could price protect against this information asymmetry.
The exact form and content of the "audit opinion" will vary between countries, firms and
audited organizations.
In the US, the CPA firm provides written assurance that financial reports are "fairly
presented in conformity with generally accepted accounting principles (GAAP)." The
measure for "fairly presented" is that there is less than 5% chance (5% audit risk) that the
financial statements are "materially misstated."
[edit] History
[edit] Audit of government expenditure
The earliest surviving mention of a public official charged with auditing government
expenditure is a reference to the Auditor of the Exchequer in England in 1314. The
Auditors of the Imprest were established under Queen Elizabeth I in 1559 with formal
responsibility for auditing Exchequer payments. This system gradually lapsed and in
1780, Commissioners for Auditing the Public Accounts were appointed by statute. From
1834, the Commissioners worked in tandem with the Comptroller of the Exchequer, who
was charged with controlling the issue of funds to the government.
Auditing of UK government expenditure is now carried out by the National Audit Office.
Sing industry (acting through various organisations throughout the years) as to the
accounting standards for financial reporting, and the U.S. Congress has deferred to the
SEC.
This is also typically the case in other developed economies. In the UK, auditing
guidelines are set by the institutes (including ACCA, ICAEW, ICAS and ICAI) of which
auditing firms and individual auditors are members.
Some oversight organizations require auditors and audit firms to undergo a third-party
quality review periodically to ensure the applicable GAAS is followed.
Purpose:
Purpose:
Notes:
• In some cases an auditor may not perform any internal controls testing, because
he/she does not expect internal controls to be reliable. When no internal controls
testing is performed, the audit is said to follow a substantive approach.
• This test determines the amount of work to be performed i.e. substantive testing
or test of details.[citation needed]
The exact 'audit opinion' will vary between countries, firms and audited organisations.
In the US, the CPA firm provides written assurance that financial reports are 'fairly
presented in conformity with generally accepted accounting principles (GAAP).' The
measure for 'fairly presented' is that there is less than 5% chance (5% audit risk) that the
financial statements are 'materially misstated'.
[edit] Finalization
Timing: at the end of the audit
Purpose:
Accounting requires that an accountant must have accounting knowledge while auditing
work required that an auditor must have accounting as well as auditing knowledge.
Accounting is concerned with current data. It is constructive in nature. Auditing is
concerned with past data. It is analytical in nature. The time period of accounting is
usually one year. It takes one year to complete record. The time period of auditing is
usually less than one year. It may be completed within one month.