audit

1. An examination of records or financial accounts to check their accuracy.
2. An adjustment or correction of accounts.
3. An examined and verified account.

1. To examine, verify, or correct the financial accounts of: Independent accountants audit the company annually. The IRS audits questionable income tax returns.
2. To attend (a course) without requesting or receiving academic credit.

To examine financial accounts.

[Middle English (influenced by auditor, auditor), from Latin audītus, a hearing, from past participle of audīre, to hear.]

An examination of systems, programming and datacenter procedures in order to determine the efficiency of computer operations.

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1. An unbiased examination and evaluation of the financial statements of an organization. It can be done internally (by employees of the organization) or externally (by an outside firm).

2. An IRS examination of a taxpayer's return or other transactions. The IRS performs this examination to verify the accuracy of these filings.

Investopedia Says:
1. Auditors ensure the fiscal accuracy and responsibility of organizations.

2. This is the ultimate fear of nearly every taxpayer.

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In general: official examination and verification of accounts and records, as in a tax audit.

Publishing: examination of a publisher's records by an outside auditing firm to ascertain the validity of the publisher's statements regarding the circulation figures of a publication. An audit is done in an official capacity on an annual basis. The circulation figures are important, because the cost of advertising is based on circulation. The greater the circulation, the larger the reading audience, and, therefore, the greater the cost of advertising. Also audited are the publisher's methods of arriving at the circulation figures with separate notations for reduced rate subscriptions, free copies, or subscriptions in arrears. See also audit bureau of circulations; audit trail; business publications audit of circulations; verified audit circulation corporation.

Inspection of the accounting records and procedures of a business, government unit, or other reporting entity by a trained accountant, for the purpose of verifying the accuracy and completeness of the records. It may be conducted by a member of the organization (internal audit) or by an outsider (independent audit). A CPA audit determines the overall validity of financial statements. A tax (IRS) audit determines whether the appropriate tax was paid. An internal audit generally determines whether the company's procedures are followed and whether embezzlement or other illegal activity occurred.

Inspection of the books, records, and procedures used by a business or individual, conducted by a CPA or other person qualified to do so.
Example: An audit was required as part of the sale of a commercial building to verify historical financial information.

The objective of an audit is to provide assurance that an assertion corresponds with some established criteria. An audit involves gathering and evaluating evidence to support the assertions and preparing a communication indicating the work done by the auditor and his or her opinion regarding the degree of correspondence between the assertions and established criteria.

Types of Audits

Two primary types of audits are financial audits and compliance audits. In a financial audit, the management of a business asserts that the financial statements are prepared in accordance with generally accepted accounting principles (GAAP), which are the applicable criteria. The financial statement auditor attests to the degree of correspondence between those financial statements and GAAP. In a compliance audit, an individual or business asserts that it is complying with specific laws, regulations, policies or procedures. The compliance auditor provides assurance that the entity is, in fact, complying with those applicable criteria. More details are provided below.

Audits are related to a wide range of criteria. Operational, or performance, audits evaluate the effectiveness and/or efficiency of an organization. For example, an auditor may determine whether or not a recipient of government funds is performing the funded services in a cost-efficient manner. The term "attestation engagement" includes audits and other services in which an auditor is engaged to issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. For example, an auditor may attest to the reliability of awards programs. The key components are an assertion made by one party with the expectation that a third party will rely on it and an attest or providing a written report on the assertion. Assurance services are independent professional services, including attestation services, that improve the quality of information or its context for decision makers. Developing areas for assurance services include Webtrust, which provides assurance regarding controls related to electronic commerce.

Types of Auditors

The three broad groups of auditors are external, internal, and governmental. Certified public accountants (CPAs) are external, independent auditors who are licensed by individual states to provide auditing services. The public accounting profession has played an active role in developing and providing attestation services. The American Institute of Certified Public Accountants (AICPA), a voluntary national professional organization, represents the accounting profession in the United States in general and the public ac counting profession in particular. The AICPA publishes books, journals, and other materials, manages a Web site (www.aicpa.org), lobbies legislators, and sets professional standards. State professional societies, such as the New York State Society of CPAs, provide support on a local level. The United States Securities and Exchange Commission (SEC), in requiring publicly held companies to have annual audits, promoted the role of the CPA in providing services of this nature (i.e. independent, professional, external verification). SEC requirements are discussed below.

Internal auditors are employees of organizations. In publicly owned companies, internal au ditors typically report to senior management and the board of directors, through its audit commit tee. Internal auditors are primarily involved in compliance and operational audits. The Institute of Internal Auditors (IIA), an international organization, is the professional organization repre-senting the internal auditing profession. The IIA publishes materials, encourages local chapter activities, offers certification as a certified internal auditor (CIA), and provides general support for practicing internal auditors. (For more information, go to http://nan.shh.fi/raw/iia/.)

Government auditors evaluate their own agencies and those for which they are responsible, including recipients of funds. These auditors exist on the national, state, and local levels. Internal Revenue Service (IRS) auditors and General Accounting Office (GAO) auditors are the most visible government auditors. IRS auditors examine tax returns. (For more information, go to http://www.irs.gov/.) The GAO is responsible for oversight, review, and evaluation of federal agencies and recipients of federal funds. The GAO reports to the U.S. Congress. (For more information, go to http://www.gao.gov/index.htm.)

Financial Audits

The objective of a financial audit is to determine whether the financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The management of an organization is responsible for preparing the financial statements. The auditor is responsible for rendering an opinion on the fairness of those financial statements based on his or her audit.

When preparing the financial statements, management must follow GAAP, which are the principles and practices that govern financial re porting. Formal Statements of Financial Ac counting Standards are issued by the Financial Accounting Standards Board (FASB), an independent standards-setting organization in the United States. (For more information, go to www.rutgers.edu/Accounting/raw/fasb/.) The Audit Committee of the company's board of directors acts as a liaison with the auditors who are per forming the financial statement audit.

Securities and Exchange Act of 1934

The Securities and Exchange Act of 1934 requires publicly held companies to file Form 10-Ks with the Securities and Exchange Commission (SEC) within 90 days after the end of the fiscal year. This filing must include audited financial statements and an independent auditors report. The SEC was established to protect investors, and the requirement to publish audited annual financial statements plays a role in meeting that objective. (For more information, go to www.sec.gov.)

Nonpublic companies may have their financial statements audited for several reasons. The company may be planning to go public in the near future and will need audited financial statements for several years prior to an initial public offering. A bank or other creditor may require audited financial statements annually. A business may voluntarily hire an auditor to provide the owners with assurance that its financial statements are reliable.

Cpa Firms

Audited financial statements that will be submitted to the SEC or to others are audited by CPAs. These CPAs practice in public accounting firms, many of which are referred to as professional services firms. The largest firms are commonly referred to as "The Big Five." These five firms are: Arthur Andersen & Co. (http://www.arthurandersen.com/), Deloitte & Touche (http://www.dttus.com/), Ernst & Young (http://www.ey.com), KPMG Peat Marwick (http://www.kpmgcampus.com/), and Pricewaterhouse Cooper (http://www.pwcglobal.com/). These companies, and many other public accounting firms, operate as limited liability partnerships (LLPs) and thus carry LLP designation in their names. In addition to accounting and auditing services, many CPA firms offer tax and consulting services. These consulting services include systems design, litigation support, pension and benefits consulting, and financial planning.

Generally Accepted Auditing Standards

The external, independent CPA must follow generally accepted auditing standards (GAAS) when performing the financial statement audit. These ten broad standards include three general requirements for the individual auditor, three standards for fieldwork, and four reporting standards. Authoritative guidance regarding the application of these ten general standards is provided in Statements on Auditing Standards (SASs), which are issued by the AICPA's Auditing Standards Board.

The general standards require the CPA to be proficient in accounting and auditing, to be independent from his or her client, and to exercise due professional care. Before accepting an audit client, the auditor must determine if he or she will be able to provide the necessary services on a timely basis and must have no financial or managerial relationship with the company whose financial statements are being audited.

The fieldwork standards address what is required when actually performing the audit work. The auditor must plan the engagement and supervise assistants. The auditor must obtain an understanding of the company's internal controls. The auditor must obtain sufficient competent evidence to support the financial statement assertions.

The reporting standards set requirements for the auditor's report. The report must explicitly refer to GAAP and must state an opinion on the financial statements as a whole. If there has been a change in accounting principles used by the company or inadequate disclosure of significant information, the auditor's report should address those issues.

Types of Auditor's Reports

The auditor can issue five types of reports on financial statements: unqualified opinion, unqualified opinion with explanatory language, qualified opinion, adverse opinion, or disclaimer of opinion.

If the financial statements present fairly, in all material respects, an entity's financial position (i.e., the balance sheet), results of operations (i.e., the income statement), and cash flows (i.e., the statement of cash flows) in conformity with GAAP, and if the audit is performed in accordance with GAAS, then a standard unqualified report can be issued. The standard unqualified report is as follows:

Independent Auditor's Report

We have audited the accompanying balance sheets of X company as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of X Company as of [at] December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

Under certain circumstances, which are specified in the professional guidance, an auditor adds explanatory words or paragraph to a report in which an unqualified opinion is expressed. The unqualified opinion is not affected. There are nine situations in which such explanations are allowed. Among the most common are those instances in which there has been a change in accounting principle with which the auditor concurs. In such instances, the auditor adds a paragraph after the opinion paragraph. The additional paragraph identifies briefly the accounting change.

The auditor would issue a qualified opinion in situations where the auditor views a departure from GAAP as being material, but not pervasive or highly material relative to the entire set of financial statements; or when the auditor has not been able to obtain sufficient competent evidence pertaining to a material, but not pervasive or highly material, part of the financial statements. The auditor must add an explanatory paragraph before the opinion paragraph describing the reason for the qualification and then qualify the opinion paragraph. In the case of inadequate evidence, which is referred to as a scope limitation, the second paragraph of the report would also been modified.

If, in the auditor's judgment, pervasive or highly material deviation(s) from GAAP exist and the auditee cannot be persuaded to adjust the financial statements to the satisfaction of the auditor, then the auditor must express an adverse opinion. In this condition, the auditor expresses an opinion that the financial statements taken as a whole do not present fairly the financial position, results of operations, and cash flows of the company in accordance with GAAP.

A disclaimer of opinion, which basically means giving no opinion, is issued when the scope limitation (typically lack of evidence regarding financial statement assertions) is so pervasive or highly material that the auditor cannot draw conclusions as to the fairness of the financial statements, taken as a whole. A disclaimer is also issued when the auditor lacks independence from the auditee. Disclaiming an opinion is also permitted, but not required, in conditions of major uncertainty about the company's ability to continue as a going concern for a year following the date of the financial statements.

Code of Professional Conduct

The AICPA Code of Professional Conduct guides the CPA in the performance of professional services, including audits. The code consists of principles, rules, interpretations, and rulings, going from the very broad to the very specific.

The six ethical principles of professional conduct provide the basis for the rest of the code. CPAs are expected to exercise professional and moral judgments in all their activities. CPAs should act in the public interest. CPAs should perform all their work with the highest sense of integrity. CPAs should be free of conflicts of interest when performing professional services. CPAs should observe the profession's technical and ethical standards. CPAs in public practice should observe these principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

The rules address more specific ethical concerns. CPAs are required to be independent, to act with integrity and objectivity, and to follow and comply with applicable standards. When expressing an opinion on financial statements, the CPA must use GAAP as the criteria for evaluating fairness. Client information is confidential. Contingent fees, commissions, or referral fees are not acceptable when providing audit services. CPAs shall not commit discreditable acts, advertise in deceptive ways, or practice in a form of organization that is not permitted by state law.

The interpretations provide more detail regarding the rules. The independence rule has the most interpretations. Interpretations give guidance on issues such as financial and managerial relationships with the client, honorary directorships, loans, litigation, and firm and family relationships. Interpretations of other rules address issues such as conflicts of interest, competency, departures from promulgated GAAP, disclosure of confidential client information, sale of a practice, contingent fees in tax matters, client's records, governmental requirements in attest services, and CPAs operating a separate business.

Rulings are answers to specific questions. They provide guidance to CPAs regarding particular concerns that surface in providing professional services. Examples include whether or not a CPA can accept a gift from a client, when an individual can refer to him- or herself as a CPA, and the recruiting of personnel to fill a client position.

Compliance Audits

The objective of a compliance audit is to determine whether the auditee is following prescribed laws, regulations, policies, or procedures. These audits can be performed within a business organization for internal purposes or in response to requirements by outside groups, particularly government. Compliance audits can also be performed on individuals, for example, a compliance audit of an individual's tax return.

Typically, internal auditors are involved with compliance audits, within an organization, although independent CPAs perform this work as well. A compliance audit may focus on internal controls and whether or not the organization is following the internally prescribed policies and procedures. As part of the compliance audit, the auditor will obtain evidence supporting the assertion that the controls are being followed. Based on the auditor's evaluation of the evidence, he or she will usually write a report discussing the findings and making recommendations for improvement. A compliance audit could also look at external laws and regulations. The auditor would assess whether or not the organization, or the applicable part of the organization such as the marketing department, is adhering to specific laws and regulations, such as the Foreign Corrupt Practice Act of 1977. This law prohibits business entities from bribing officials of other governments in order to win business contracts.

Standards to be used when auditing federal government agencies and recipients of federal funds are found in "Government Auditing Standards," issued by the Comptroller General of the United States. This publication, which is referred to as the "Yellow Book," includes additional auditing standards that must be followed, in addition to GAAS. As part of any Yellow Book audit, the auditor must evaluate compliance with laws and regulations.

The auditor must perform several steps. First, the auditor must identify pertinent laws and regulations. Then, the auditor assesses the risks of material noncompliance; in so doing, the auditor must consider and assess internal controls. Next, the auditor designs steps and procedures to test compliance with laws and regulations to provide reasonable assurance that both unintentional and intentional instances of material noncompliance are detected. The auditor must issue a report on the tests of compliance in which all instances of noncompliance or illegal acts must be reported.

(See also: Assurance services; Audit Committees; Government Auditing Standards)

Bibliography

Messier, William F. Jr., (1997). Auditing: A Systematic Approach. New York: Irwin McGraw-Hill.

[Article by: MOHAMMAD J. ABDOLMOHAMMADI; ELLIOTT S. LEVY]

For more information on audit, visit Britannica.com.

A systematic examination of financial or accounting records by a specialized inspector, called an auditor, to verify their accuracy and truthfulness. A hearing during which financial data are investigated for purposes of authentication.

The examination by an outside party of the accounts of an individual or corporation.

Army Uniform Data Inquiry Technique

• How2audit.com Auditing and asset management.

For other uses, see Audit (disambiguation).

The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article or discuss the issue on the talk page.

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, 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.

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."

Contents 1 Quality audits 2 Integrated audits 3 Types of auditors 4 See also 5 External links

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.

Types of auditors

There are two types of auditors:

• 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 company.

See also

• Audit risk
• External audit
• Financial audit
• Internal audit
• Continuous auditing
• Lead Auditor
• Comptroller General of the United States
• Green Globe
• COSO framework

External links

• Audit definition with examples of types and general information
• About the Process & the Profession of Auditing The Accounting Nation

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

Dansk (Danish)
n. - regnskabsrevision, økonomisk analyse
v. tr. - revidere, foretage gennemgang af
v. intr. - foretage regnskabsrevision, foretage økonomisk analyse

idioms:

• audit trail    revisionsspor

Nederlands (Dutch)
accountantsrapport, grondige controle, balans-/boekhouding controleren, toehoren bij colleges

Français (French)
n. - audit, vérification des comptes
v. tr. - vérifier, apurer (des comptes), (US, Univ) assister à un cours (comme auditeur libre)
v. intr. - vérifier

idioms:

• audit trail    (Comput) trace d'audit

Deutsch (German)
n. - Buchprüfung
v. - prüfen, als Gasthörer belegen

idioms:

• audit trail    Veränderungen in einer Datei speichern

Ελληνική (Greek)
n. - (οικον.) λογιστικός ή οικονομικός έλεγχος, επαλήθευση ή έλεγχος λογαριασμών, (καθομ.) λεπτομερής έλεγχος (π.χ. αεροσκάφους)
v. - (οικον.) ελέγχω, διεξάγω οικονομικό ή λογιστικό έλεγχο

idioms:

• audit trail    (οικον.) σύστημα ελέγχου χρηματιστηριακών συναλλαγών, (Η/Υ) διάταξη αυτόματου έλεγχου λειτουργιών

Italiano (Italian)
verificare, revisionare (di conti), ispezionare

Português (Portuguese)
n. - auditoria (f)
v. - revisar, examinar (livros contábeis)

Русский (Russian)
проверка, ревизия

Español (Spanish)
n. - intervención, revisión
v. tr. - verificar o revisar la contabilidad, auditar
v. intr. - hacer una verificación o revisión de la contabilidad, hacer una auditoría

idioms:

• audit trail    cruzamiento, contabilidad por doble registro, registro de cambios de un archivo de computación

Svenska (Swedish)
n. - revision, redovisning
v. - revidera, granska

中文（简体）(Chinese (Simplified))
审计, 查帐, 稽核, 旁听, 查账

idioms:

• audit trail    审核线索, 审计轨迹

中文（繁體）(Chinese (Traditional))
n. - 審計, 查帳, 稽核
v. tr. - 稽核, 旁聽
v. intr. - 查賬

idioms:

• audit trail    審核線索, 審計軌跡

한국어 (Korean)
n. - 감사, 결산서(회계 보고서)
v. tr. - ~을 감사하다, ~에 청강생으로 출석하다
v. intr. - 회계 검사를 하다

日本語 (Japanese)
n. - 会計検査, 会計監査, 決算報告
v. - 会計検査をする

العربيه (Arabic)
‏(الاسم) تدقيق على الحسابات, نيان بنتائج تدقيق الحسابات (فعل) يدقق, يحضر‏

עברית (Hebrew)
n. - ‮ביקורת חשבונות‬
v. tr. - ‮ביקר חשבונות, השתתף בלימודים באופן לא-רשמי, שלא על מנת לקבל תעודה‬
v. intr. - ‮בדק ואימת חשבונות ע"י בדיקת שוברי-תשלום‬

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