An audit typically reviews work papers.
Audit is a term that can refer to three different but connected issues: depending on the specific context, it refers to the work performed by an auditor; to the task of studying the economics of a company; or to the office where these actions are performed (i.e., where the auditor works).
The auditing activity consists of carrying out an examination of the processes and economic activity of an organization to confirm whether they comply with what is established by laws or good criteria.
An accounting review
Typically, the term refers specifically to accounting audit , which involves examining the accounts of an entity.
For example: "This afternoon we will have an audit ordered by the municipality," "The audit showed that the losses occur due to failures in the production process," "The manager estimates that the audit will be completed in about two weeks."
Audit function
It can be said that the audit is a type of examination or evaluation that is carried out following a certain methodology. Typically, the auditor does not belong to the audited entity. There are large firms dedicated to accounting audits, such as PricewaterhouseCoopers , Deloitte , KPMG and Ernst & Young , among many others.
The person in charge of carrying out this evaluation is called the auditor . Their work involves carefully analyzing the company's actions and the documents where they have been recorded and determining whether the measures that have been taken in the different cases are appropriate and have benefited the company.
The submission of audit reports is mandatory in certain areas.
Its application in a company
An audit is one of the ways in which the scientific principles of accounting can be applied, where the verification of assets and the work and benefits achieved by the company are essential, but they are not the only important thing. The audit also tries to provide guidelines that help the members of a company to properly carry out their activities, evaluating them, recommending certain things and carefully reviewing the tasks that each one performs within the organization.
In a company, evaluation regarding the organizational performance of the entire entity is essential to be able to discern whether the desired objectives have been achieved. This work corresponds to audits.
An audit may consist of a financial analysis of the balance sheet.
Types of audit
There are different types of audits depending on the characteristics considered. Among other types of audits beyond accounting ones, we can mention the energy audit (which inspects the use of energy by a system or a construction), the environmental audit (focused on how an entity affects the environment), the social audit (which controls the activity of a firm in terms of its social responsibility) and the computer audit (a procedure that studies whether a computer system manages to preserve the integrity of its data and the efficient use of resources).
Depending on what is analyzed in the exam, it is also possible to distinguish between the insurance audit , the audit of public funds and the forensic audit , among many others.
An external audit , on the other hand, consists of a detailed examination of the information system of a financial entity; It is carried out by a public accountant who is not linked to the company. Its primary objective is to find out the integrity and authenticity of the actions and files found within the organization's information system.
An internal audit , for its part, is a detailed analysis of the company's information system, for which a series of specific techniques and methods are used. The reports are prepared by a professional who has employment ties with the company and they circulate internally without having legal validity outside the company.
When company balance sheets are very negative, auditors usually recommend companies use certain strategies to recover financially. For example, they recommend announcing a new product that was not yet expected to be launched, in order to captivate the attention of investors and the general public and recover the lost money. Audits fundamentally serve for companies to analyze their stocks and receive guidance to remain active and improve their positioning in the market .
Finally, it should be noted that, in Argentina , the General Audit Office of the Nation is the body in charge of providing technical support to Congress to control the status of the different public accounts.
Its importance
As a summary, it is possible to state that a financial audit can be useful both to maintain internal control and to satisfy an external requirement . These investigations contribute to fraud detection, review of policies and procedures, and performance evaluation.
Therefore, the audit makes it possible to present a management report and certify regulatory compliance , for example. The process itself thus contributes to the reliability of the organization.