Financial Dictionary -> General Finance -> Audit

Audits are usually conducted in accounting, but the term can also apply to the fields of quality management, project management, and energy conservation. An audit is an assessment of an individual, process, system, company, organization, institution, product, or project. Audits are carried out to verify the reliability of any given information and provide an evaluation of the internal control of the system. The audit expresses an opinion on the subject in question and provides assurance that there are no material errors. Thus, statistical data is often used in the process of conducting audits. With financial audits, the verity of financial statements is established when there are no material misstatements. At the same time, audits are not limited to acquiring data on financial systems and records. Other information is also included, for example, information about the overall performance of the system, security risks, and environmental performance. Audits are now specialized and divided into information system audits, security audits and so-called environmental audits. The last kind involves an evaluation of the environmental performance and the environmental standard, on the basis of which companies and organizations are evaluated under ISO 14001. Under these requirements, companies are able to assess and control the environmental impact of their services, products and activities.

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.

In the United States, there are integrated audits, which involve giving an opinion on the efficiency of internal control, apart from analyzing financial statements.

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. Due to the broad scope of activities, internal auditors come from diverse educational fields and professions.

Finally, we must establish the difference between assessments and audits. Assessments involve a more dependent and consultative approach, whereas audits are always an independent evaluation including, to a certain extent, quantitative and qualitative analysis.