The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and for energy conservation.

Audits in accounting

Audits are performed to ascertain the validity In science and statistics, validity has no single agreed definition but generally refers to the extent to which a concept, conclusion or measurement is well-founded and corresponds accurately to the real world. The word "valid" is derived from the Latin validus, meaning strong and reliability In statistics, reliability is the consistency of a set of measurements or measuring instrument, often used to describe a test. Reliability is inversely related to random error of information; also to provide an assessment of a system's internal control In accounting and auditing, internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's resources are directed, monitored, and measured. It. The goal of an audit is to express an opinion on the person / organization / system (etc) in question, under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits A financial audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity , resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically, a set of financial statements are said to be true and fair when they are free of material misstatements - a concept influenced by both quantitative and qualitative factors.

Audit is a vital part of accounting Accountancy is the art of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the financial´s form statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business (see financial audit A financial audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity , resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically). However, recent auditing has begun to include other information about the system, such as information about security risks, information systems performance (beyond financial systems), and environmental performance. As a result, there are now professions conducting security audits, IS audits, and environmental audits Environmental audits are intended to quantify environmental performance and environmental position. In this way they perform an analogous function to financial audits. An environmental audit report ideally contains a statement of environmental performance and environmental position, and may also aim to define what needs to be done to sustain or.

In financial accounting Financial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power, an audit is an independent assessment of the fairness by which a company's financial statements are presented by its management. It is performed by competent, independent and objective person(s) known as auditors or accountants An accountant is a practitioner of accountancy , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and other decision makers make resource allocation decisions, who then issue an auditor's report The Auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof . The report is subsequently provided to a “user” (such as an individual, a group of persons, a based on the results of the audit.

In cost accounting In management accounting, cost accounting establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decision-making to cut a company's costs and improve profitability. As a form of management accounting, cost, it is a process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilisation of material or labour or other items of costs, maintained by the company. In simple words the term cost audit means a systematic and accurate verification of the cost accounts and records and checking of adherence to the objectives of the cost accounting.

As per ICWA London, “cost audit is the verification of the correctness of cost accounts and of the adherence to the cost accounting plan”.

Such systems must adhere to generally accepted standards set by governing bodies regulating businesses; these standards simply provide assurance for third parties or external users that such statements present a company's financial condition and results of operations "fairly".

The Definition for Auditing and Assurance Standard (AAS) 1 by ICAI - "Auditing is the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon."

Integrated audits

In the US, audits of publicly-traded companies are governed by rules laid down by the Public Company Accounting Oversight Board (PCAOB), which was established by Section 404 of the Sarbanes-Oxley Act The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002. It is named after of 2002. Such an audit is called an integrated audit, where auditors have the additional responsibility (other than to opine on the financial statements) of expressing an opinion on the effectiveness of company's internal control over financial reporting, in accordance with PCAOB Auditing Standard No. 5.

There are also new types of integrated auditing becoming available that uses unified compliance material (see the unified compliance section in Regulatory compliance In general, compliance means conforming to a rule, such as a specification, policy, standard or law. Regulatory compliance describes the goal that corporations or public agencies aspire to in their efforts to ensure that personnel are aware of and take steps to comply with relevant laws and regulations). Due to the increasing number of regulations and need for operational transparency, organizations are adopting risk-based audits that can cover multiple regulations and standards from a single audit event.^{[citation needed]} This is a very new but necessary approach in some sectors to ensure that all the necessary governance requirements can be met without duplicating effort from both audit and audit hosting resources.^{[citation needed]}

Audits vs. Assessments

The difference between audits and assessments can be considerable or can be nothing at all.

As a general rule, audits should always be an independent evaluation that will include some degree of quantitative and qualitative analysis whereas an assessment infers a less independent and more consultative approach.

Types of auditors

Auditors of financial statements can be classified into two categories:

• External auditor The primary role of external auditors is to express an opinion on whether an entity's financial statements are free of material misstatements. Some people confuse auditors with people who detect fraud but auditors have nothing to do with fraud detection exclusively. Auditors just want to make sure that company's financial statements are true and / Statutory auditor is an independent Public accounting An Accountant is a practitioner of accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and other decision makers make resource allocation decisions firm engaged by the client subject to the audit, to express an opinion on whether the company's financial statements A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by accountants are free of material misstatements, whether due to fraud or error. For publicly-traded companies A public company or publicly traded company is a company that has permission to offer its registered securities for sale to the general public, typically through a stock exchange, or occasionally a company whose stock is traded over the counter (OTC) via market makers who use non-exchange quotation services, external auditors may also be required to express an opinion over the effectiveness of internal controls In accounting and auditing, internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's resources are directed, monitored, and measured. It over financial reporting A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by accountants. External auditors may also be engaged to perform other agreed-upon procedures, related or unrelated to financial statements. Most importantly, external auditors, though engaged and paid by the company being audited, are regarded as independent auditors.

The most used external audit standards are the US GAAS Gaas is a commune in the Landes department in Aquitaine in south-western France of the American Institute of Certified Public Accountants The American Institute of Certified Public Accountants is the national, professional association of Certified Public Accountants (CPAs) in the United States, with more than 360,000 members, including CPAs in business and industry, public practice, government, and education; student affiliates; and international associates. The AICPA maintains; and the ISA International Standards on Auditing developed by the International Auditing and Assurance Standards Board of the International Federation of Accountants The International Federation of Accountants is the global organization for the accountancy profession. IFAC has 157 member bodies and associates in 123 countries and jurisdictions, representing more than 2.5 million accountants employed in public practice, industry and commerce, government, and academe. The organization, through its independent

• Internal auditors Internal auditing is a profession and activity involved in helping organizations achieve their stated objectives. It does this by using a systematic methodology for analyzing business processes, procedures and activities with the goal of highlighting organizational problems and recommending solutions. Professionals called internal auditors are are employed by the organization they audit. They perform various audit procedures, primarily related to procedures over the effectiveness of the company's internal controls over financial reporting. Due to the requirement of Section 404 of the Sarbanes Oxley Act The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002. It is named after of 2002 for management to also assess the effectiveness of their internal controls over financial reporting (as also required of the external auditor), internal auditors are utilized to make this assessment. Though internal auditors are not considered independent of the company they perform audit procedures for, internal auditors of publicly-traded companies are required to report directly to the board of directors A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as "the board.", or a sub-committee of the board of directors, and not to management Management in all business areas and organizational activities are the acts of getting people together to accomplish desired goals and objectives efficiently and effectively. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization or effort for the purpose of accomplishing a goal. Resourcing, so to reduce the risk that internal auditors will be pressured to produce favorable assessments.

The most used Internal Audit standards are those of the Institute of Internal Auditors Established in 1941, The Institute of Internal Auditors is a guidance-setting body. Serving members in 165 countries, The IIA is the internal audit profession's global voice, chief advocate, recognized authority, and principal educator, with global headquarters in Altamonte Springs, Fla., United States.

• Consultant A consultant is a professional who provides advice in a particular area of expertise such as management, accountancy, the environment, entertainment, technology, law (tax law, in particular), human resources, marketing, emergency management, food production, medicine, finance, life management, economics, public affairs, communication, engineering, auditors are external personnel contracted by the firm to perform an audit following the firm's auditing standards. This differs from the external auditor, who follows their own auditing standards. The level of independence is therefore somewhere between the internal auditor and the external auditor. The consultant auditor may work independently, or as part of the audit team that includes internal auditors. Consultant auditors are used when the firm lacks sufficient expertise to audit certain areas, or simply for staff augmentation when staff are not available.

• Quality auditors may be consultants or employed by the organization.

Quality audits

Quality audits are performed to verify the effectiveness of a quality management system. This is part of certifications such as ISO 9001 ISO 9000 is a family of standards for quality management systems. ISO 9000 is maintained by ISO, the International Organization for Standardization and is administered by accreditation and certification bodies. The rules are updated, as the requirements motivate changes over time. Some of the requirements in ISO 9001:2008 include. Quality audits are essential to verify the existence of objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels, providing evidence concerning reduction and elimination of problem areas and are a hands-on management tool for achieving continual improvement in an organization.

To benefit the organization, quality auditing should not only report non-conformances and corrective actions but also highlight areas of good practice. In this way, other departments may share information and amend their working practices as a result, also enhancing continual improvement.

In Project Management

Projects can undergo 2 types of audits^[1]:

• Regular Health Check Audits: The aim of a regular health check audit is to understand the current state of a project in order to increase project success.
• Regulatory Audits: The aim of a regulatory audit is to verify that a project is compliant with regulations and standards.

Energy audits

An energy audit is an inspection, survey and analysis of energy In physics, energy is a quantity that is often understood as the ability to perform work. This quantity can be assigned to any particle, object, or system of objects as a consequence of its physical state flows for energy conservation Energy conservation refers to efforts made to reduce energy consumption in order to preserve resources for the future and reduce environmental pollution. It can be achieved through efficient energy use , or by reduced consumption of energy services. Energy conservation may result in increase of financial capital, environmental value, national in a building, process or system to reduce the amount of energy input into the system without negatively affecting the output(s).

References

1. ^ Cutting, Thomas (January 12, 2008). "How to Survive an Audit". PM Hut. http://www.pmhut.com/how-to-survive-an-audit. Retrieved December 13, 2009.

See also

Categories: Auditing

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