What is an Audit
Definition: The process by which a company or auditor (an independant accountant) is hired to gather information of value to verify that the company being audited has complied with all accounting rules and regulations.
It is important to understand that there is a ton of judgement involved throughout many areas of the accounting rules, and so that is the reason an auditing company or auditor is brought in.
Role of the AuditorThe auditor is an individual who is trained and experienced enough to review and verify that the accounting data provided by the audited company actually corresponds accurately to the activities that have been partaken by the company.
The auditor's job is to write a report at the conclusion of the audit which determines the level of accuracy and clarity that the organization has accounted for.
For instance, if all accounting moves made by the company are reflected in the books (such as the general ledger), and all data that appears in the records correspond to the course of business in the company, the audit showed no signs of misrepresentation.
Obligations of an Audit
Why Audits are Important
- The company must certify that its resources are being used in an efficient manner because there are people who depend on the activity performed by the company such as creditors or their own employees.
- Companies must deal with all legal regulations such as paying taxes faithfully.
- Finally, the auditor provides a professional opinion on the financial status of the company that proivdes a vote of confidence to future creditors or investors of the company.