Audit

From Wikipedia, the free encyclopedia

An audit is an evaluation of an organization, system, process, project or product. In Accounting, 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 or persons, known as auditors or accountants, who then issue a report on the results of the audit.

Audits are performed to ascertain the validity and reliability of financial information, and also provide an assessment of a company or a business' system of internal control. Such systems must adhere to generally accepted standards set by governing bodies that regulate businesses. An audit is based on random sampling and is not an assurance that financial statements are free from errors. It simply provides assurance for third parties or external users that such statements present 'fairly' a company's financial condition and results of operations.

Auditing is a part of some quality control certifications such as ISO 9000.

Financial Audits

Main article: Financial audit

An important type of audit is the financial audit. It is designed to determine whether financial statements are fairly presented in accordance with International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). In the United States, financial audits are required for all publicly registered companies.

In addition, financial audits may be performed for private companies, registered charities, and some governmental and public entities. Private companies typically request financial audits year after year because lenders may have required an audit or owners may want to have external unbiased eyes look at the financial statements to determine if the company is complying with all the required accounting principles. Charities would require a financial audit to show the financial status of the organization to potential donors. Governments and government businesses are usually required to be audited by statutes to determine if all the money budgeted has been properly spent. Government financial reports are not always audited by outside auditors. Some governments have elected or appointed auditors.

Types of Auditors

There are two types of auditors:

• Internal auditor- are employees of a company hired to assess and evaluate its system of internal control. To maintain independence, they present their reports directly to the Board of Directors or to Top Management.

• External auditor- are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed upon evaluations. Most external auditors are employed by an auditing firm which provide them with the training to do financial, performance, or other audits.

• phantom ticker- highly respected by their peers, phantom tickers are the most sought after audit staff. Renowned for their working speed and congenial client relations, the phantom ticker spends most of their time seeking caffine-based refreshment by day and get their excitement from drinking and gambling by night.

Famous Auditors

Famous Auditors include:

• The Nipple. This cheeky ginger was renowned for his diligent approach to audit - often spending hours at home late at night dialed into the network searching for the perfect working paper.

• Le Juif. Le Juif had the incredible ability of remaining anonymous. When not wisecracking and indulging in geosense, Le Juif found time to work on his anonymity. So successful was he, that when seen out by employees the frequent response was "you must be busy, I haven't seen you in the office for ages." Quite simply a legend.

 

Major Audit Companies

There are 4 major companies that compete in the financial audits arena. They form what is known as the Big Four. These companies are international firms and are the most well known outside auditors in the industry. They are as follows in order of size:

1) PricewaterhouseCoopers, also known as PwC

2) Deloitte Touche Tohmatsu, also known as Deloitte

3) Ernst & Young, also known as E&Y

4) KPMG, used to be known as Klienveld Peat Marwick Gordeler

There are many other audit firms competing with the big four. In the US, mid-tier firms such as Grant Thornton and BDO serve many mid-size companies while smaller entities may contract the services of local CPA firms.

In the UK the medium sized firms are also referred to as mid-tier. Many of these firms are international and increasingly are competing for work against the big four, especially following the recent large auditing scandals (eg Worldcom, Parmalat).

Auditing Firms around the World

While the 4 major audit firms listed above provide audit services to the largest corporations in America, audit firms around the world are also in partnership with the Big Four. Since corporations held offices in other parts of the world, they tend to be audited by affiliates of the Big Four to maintain consistency and uniformity in their application of auditing standards.

See also

Some examples are:

• Single Audit
• Audit risk
• Clinical audit
• Computer security audit
• Configuration audit (as part of configuration management)
• Conformity assessment audit (ISO, HACCP, JCAHCO)
• Health & Safety Audit
• Environmental audit
• Financial audit (the oldest)
• Information technology audit
• Internal audit
• Management system audit (quality audit, safety audit, environmental audit)
• Performance audit
• Security Audit (not computer-related)
• Software audit
• Telecommunication audit

External links

• National Information Assurance (IA) glossary
• Audit - Design Dictionary Competitive product analysis.
• Glossary of auditing terms