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.

The audit plays a vital role in accounting reflecting the image or financial position of a company.

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 Auditor

The 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

  • Review accounts in order to see if the company has used its resources efficiently and effectively.
  • Review and check the various reports provided by the company on their business and prove that it is an accurate representation.
  • The audit and the auditor therefore, must be completely independent, which is essential to legitimize the process and reflect reality.

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.