Audit is one of the most dynamic areas of accounting science. This term is of Latin origin and means "listening". To date, there are a lot of definitions of audit, as well as classifications. Generally speaking, it is synonymous with control and verification.
Companies prepare financial reports of their activities that reflect their overall performance. This paper is reviewed and evaluated by independent parties who review it against generally accepted industry standards.
Term
The definition of an audit states that it is an audit of financial and accounting statements, as well as documents confirming the activities of the company, by an independent specialist in accordance with established criteria. This exam and assessment is a revision.
However, a precise definition of an audit is difficult to give. We invite you to familiarize yourself with the formulations proposed by different authors.
According to the International Federation of Accountants
Audit is the verification of the financial information of an organization, regardless ofwhether it is profit oriented or not. This process is also independent of the size or legal form of the organization. Such an audit is carried out in order to express an opinion on the company's activities.
Spicer and Pegler definition of audit
This is the kind of study of financial statements, invoices and paychecks that allows the verifier to make sure that the balance sheet is drawn up properly. The audit allows you to give a true and objective view of the state of affairs in the enterprise, as well as whether the profit and loss account gives a reliable and fair vision of the state of affairs of cash flows for the financial period, in accordance with the information provided and explanations given to the auditor and documented.
According to the American Accounting Association
Audit is the systematic process of objectively obtaining and evaluating evidence about claims about a company's economic performance. Also, these are measures to determine the degree of compliance between the activities of the audited organization and the established criteria for financial transactions.
According to Montgomery
Audit is the systematic examination of the books of a business or organization to determine if there is a violation or not, and to inform the facts about a financial transaction and its results.
From the above definitions, it is clear that an audit system is the scientific examination of the books and records of business conduct. It allowsthe auditor to judge that the balance sheet and income statement are properly drawn up. Therefore, it shows a true and fair view of the company's financial position and cash flow for the given period.
Professional employee
The auditor must review various books, accounts, relevant documents to ensure the accuracy and reliability of the financial statement of the enterprise. Companies are expected to pass such an examination, as this result is very important for their reputation and future success.
The results of the audit are very valuable for shareholders and investors, as they provide additional confidence in their investment choices.
The reviewer must be a professional who is able to properly assess the evidence in order to reach a credible verdict on whether or not the firm's economic activity complies with an established set of procedures and standards.
Although a highly qualified accountant is required to work as an auditor, some other professions may perform the audit, depending on the purpose of the audit being carried out and its type. It is important for these employees to obtain effective audit results in order to apply certain sanctions or make a decision if necessary.
Origin and evolution
Primary audit used to be primarily a government accounting method. During the time of the ancient Egyptians, Greeksand the Romans there was a practice of auditing the cash flow of state institutions.
It wasn't until the Industrial Revolution (1750 to 1850) that audit began to evolve in fraud detection and financial reporting.
At the beginning of the 20th century, the practice of reporting, which included the provision of documents on the results of the audit, was standardized and became known as the "Report of the Independent Auditor".
Increase in demand for employees leads to the development of the testing process. Auditors have developed a way to strategically select key cases to determine overall company performance.
It was an affordable alternative to going through each case in detail. It took less time than a standard check.
Key Features
From the definitions of an audit presented above, there are six main factors of a financial audit:
- System process.
- Trilateral relations.
- Established audit criteria.
- Theme.
- Evidence.
- Opinion.
Goals
The objective of an audit is to express an opinion on the fairness of financial statements. Process goals can be divided into two types:
1. Basic, include:
- Studying the internal control system.
- Checking the arithmetic accuracy of accounting books, cash flow, various castings, balancing, etc.
- Checking the authenticity and validity of transactions.
- Correctness revisiondifferences between capital and income from the nature of transactions.
- Confirmation of the existence and value of assets and liabilities.
2. Auxiliary, which mean:
- Error detection and prevention.
- Finding and eliminating fraud.
- Detect inaccuracies such as undervaluation or overvaluation of stocks.
Audit range
The scope of the review is the definition of the range of activities and the period of records to be reviewed.
The audit range is:
- Legal requirements.
- Reliable information.
- Correct communication.
- Evaluation of the economic activity of the firm..
- Tests.
Institutions that set international auditing standards
There are several institutions that employ certified public accountants who are responsible for setting GOSTs. One of them is the IFAC or the International Federation of Accountants (IFAC). It is an independent global organization that sets international standards for ethics, assurance, auditing and accounting practices in the public sector.
Founded in 1977, IFAC has 179 members and associates in 130 countries and jurisdictions. The organization brings together more than 2.5 million accountants working in public practice, industry, commerce, government.
It is IFAC, through independent benchmarking boards, that determines accepted and implemented standardsethics, auditing, accounting education.
To ensure that the activities of IFAC and the independent standards bodies supported by IFAC are in the public interest, the International Public Interest Oversight Board (PIOB) was established in February 2005.
Types of audit
Let's consider the classification of checks. Audit can be both external and internal. Let's consider each type separately.
External is also called financial and mandatory. It involves checking the accuracy of the financial statements of the organization by an external employee who is independent of the enterprise and operates in accordance with the IFRS system. The law in most jurisdictions requires an external audit on an annual basis for high value companies.
Internal is often called operational. This audit is a voluntary assessment activity undertaken by an organization to ensure the effectiveness of internal controls, risk management and to help achieve organizational objectives. Internal audits are carried out by employees of the enterprise, who are accountable to the audit committee of the board of directors. These persons are obliged to report to the shareholders by drawing up a general opinion on the result of the work performed.
This form of audit usually centers around certain key activities that include:
- Monitoring the effectiveness of internal controls and suggestions for improving economic performance.
- Investigationcases of fraud and theft.
- Enforcement of laws and regulations.
- View and review financial and operational information as needed.
- Assessing the company's risk management procedures.
- Studying the efficiency and cost-effectiveness of operations, processes.
The two types of verification considered are the main ones. By the nature of the order, the audit happens:
- Voluntary.
- Required.
By type of activity, there are the following types of audit:
- Banking (for financial institutions such as banks).
- Insurance (for UK).
- Exchange (for currency exchanges and investment organizations)..
- General (for all industries).
In the direction of the audit, the audit happens:
- Horizontal (checks one process from start to finish).
- Vertical (affects all processes related to the financial transaction being checked).
- Forward (verification goes from the initial production operation to the final one).
- In the opposite direction (first, an assessment is made of the work performed by the firm, then a check is made of all processes that led to the final result).
By frequency types of audit:
- Primary control.
- Regularly repeated (e.g. once a year).
According to the stage of development, an audit happens:
- Risk-Based (test selective transactions where the highest risk is possible).
- Confirming (a general rigorous check during whichthe reliability of financial information about the activities of the organization is confirmed).
- System-oriented (based on the analysis of the internal control system that exists in the enterprise).
Other types of audit
Separately, there are several more types of audit. And the first one is judicial. It involves the use of screening and investigative skills in situations that may have legal implications. It is performed by a forensic accountant. These types of checks may be required in the following cases:
- Fraud investigations related to misappropriation of funds, money laundering, tax evasion and insider trading.
- Quantifying insurance claims losses.
- Calculate the profit share of business partners in the event of a dispute.
- Determining the professional malpractice claims associated with the accounting profession.
The results of the forensic examination can be used in court as an opinion on financial matters.
A tax audit is carried out to assess the accuracy of returns filed by a company. Used to determine the amount of any over or under tax liability.
An information audit involves assessing the controls relating to the IT infrastructure in an organization. An information system review may be conducted as part of a control assessment during an internal or external review.
Information audit usually consists offollowing aspects:
- Design and internal control system.
- Information security and privacy.
- Operational efficiency and effectiveness.
- Information processing and data integrity.
- System development standards.
Environmental gives an assessment of compliance by an enterprise operating in any area of the national economy with regulatory and legal norms and requirements for environmental protection. Auditors check the environmental safety of the raw materials, equipment and technologies used, make an economic assessment of environmental pollution in the course of the enterprise's activities, and develop measures to address the identified problems.
Social audit is the last kind. A feature of the audit is that experts evaluate the effectiveness of the company, the style of its work, the extent and nature of its impact on society. Social audit makes it possible to determine the degree of corporate responsibility. During the audit, the formal and informal principles that exist within the organization, the opinions of partners and other parties interested in the activities of the audited company are evaluated.
Conclusion
Audit is the systematic process of obtaining an objective assessment of evidence relating to statements relating to documents or events of an economic nature in order to assess the extent to which they meet predetermined criteria and report the results.
