Audit – definition and meaning
An audit is a formal examination, inspection, and verification of a commercial enterprise’s, organization’s, or any entity’s accounts. Audits are usually carried out by an independent party. We call somebody who carries out an audit an auditor.
The auditor must check that the accounts are accurate and represent the organization’s financial position. Additionally, the auditor needs to make sure that the company adheres to proper accounting principles.
In a retail audit, the auditor measures the effectiveness, trends, sales, and sales volume of a product or brand. If it is a large company, the auditor will select a number of retail outlets for the inspection.
A warehouse audit examines a warehouse’s stocks and control procedures. Companies need to carry out regular warehouse audits to make sure that stock control and management are accurate. Above all, the audits help determine whether the warehouse is making the most efficient use of resources.
In a quality control audit, the quality auditor makes an independent evaluation of the quality department’s performance.
According to accounting-simplified.com: “Audit is an appraisal activity undertaken by an independent practitioner (e.g. an external auditor) to provide assurance to a principal (e.g. shareholders) over a subject matter (e.g. financial statements) which is the primary responsibility of another person (e.g. directors) against a given criteria or framework (e.g. IFRS and GAAP).”
Put simply; we carry out audits to check things. For example, to determine whether people have paid their taxes correctly or that documents are correct.
Many situations have an audit
In fact, the term can be used for any methodical examination or review of a situation or condition. There are even audits for our homes.
A home energy audit, for example, assesses how much energy a home consumes. The aim is to evaluate what measures owners can take to make their homes more energy efficient.
Audits provide assurance that something is as it should be. The auditor also makes sure that the subject matter is accurate and error-free.
When we think of auditors, we imagine the tax authorities sending an army of inspectors to turn everything upside down. However, auditors exist in many different fields.
We can audit virtually any part of the economy if there is movement of money, goods, or services.
If I want to know how to improve something, I first need to know how good or bad it is. So, I carry out an audit, and then I know where I stand.
What are auditors?
Auditors are professionals who check to determine whether things are accurate and proper. They verify the accuracy, for example, of companies’ operational and financial records.
Auditors work in accounting firms, the private sector, and government departments.
Auditors work in government departments such as the IRS (Internal Revenue Service) in the United States or HM Revenue and Customs in the UK. They also work in local government.
You can buy the shares of a public company in a formal stock market. If you want to buy shares in a private company, you need to speak to the owners directly.
By law, public companies across the world must publish audited accounts periodically. Outside professionals examine these companies’ books.
The companies then publish their accounts and file them in a government department. Public companies in the UK, for example, register their audited accounts at Company’s House.
Video – What is an audit?
This video explains what an audit is by following some auditors while they go about their work.