What is Auditing? Definition and Meaning of Audit

When one talks about auditing, financial statements audit immediately clicks through their mind. By definition, auditing can be defined as a comprehensive examination of any given formally operating organization’s financial statements or reports to assure its stakeholders of its accountable, objective and transparent operations. In this perspective, audits should reveal the accuracy and fairness of the financial statements or reports as well as ensure compliance with the required rules, regulations and guidelines.

Financial statement and reports auditing work are normally performed by auditors who may be internal or external. Internal auditors are always an organization’s employees that perform accounting auditing work within an entity to ensure that the firm’s general accounting and record-keeping requirements are undertaken appropriately. On the other hand, external auditors are generally public accountants employed by accounting firms who together with engagement teams can duly undertake clients’ auditing work.

Features of Auditing

  • Auditing involves a systematic process that integrates logic and science in the examination of an entity’s accounts for accuracy.
  • The process is normally performed by qualified and independent professional individuals or bodies.
  • Auditing involves organizational books of account and financial information examination besides also reviewing the internal controls and systems.
  • Information used in conducting an audit is retrieved from numerous sources relating to the organization in question.
  • At the end of an auditing exercise, the auditor must satisfy that the audited accounts and financial statements reflect the true position of the organization being audited in aspects including authenticity and accuracy.

Types of Audits

There are very many types of audits that can be performed in a company. All these types can be broadly categorised as either external or internal auditing.

External Audit

This type of audit involves an organization seeking the services of independent and/or third-party individuals and/or organizations to conduct an assessment or evaluation of the entity. In this regard, the auditors authenticate aspects such as compliance with laws and regulations. Besides the external audit need for compliance and regulations, it is also needed for an organization as a shareholder requirement.

Internal audit

This type of audit is on the other hand conducted by an organizations employees to ascertain conformity of an entity to its internal processes and rules. It is normally one of the first measures to establish that an organization is operating well. This audit type is however not given a lot of weight since it can be characterised by lack of thoroughness and objectivity, hence the need for external audit.

The other types of audit include Strategic audit, Operational audit, IT audit and Financial audits. The main function of financial audits is to interrogate financial statements and identify any forms of material misstatements to help stakeholders in making better and informed decisions regarding an entity.

Phases of Auditing

Auditing help process

Auditing is a process that takes place through four major stages, steps, or phases as outlined below:

1.      Audit Preparation

This involves all the activities done by the parties to an audit exercise before the actual audit to ensure that the overall process would meet the needs and objectives of the clients. This phase starts with the decision to perform an audit and ends with the commencement of the actual audit.

2.      Audit Performance

This is also referred to as fieldwork since it is the stage where the data relating to an audit is gathered. So many activities take place during this phase including management of the audit exercise on-site, stakeholders’ meetings and communication among many others.

3.      Audit Reporting

The results of an audit exercise are released or communicated during this phase. Such reports should be accurate, comprehensive, and precise besides being communicated transparently to aid the stakeholders in adequate decision making.

4.      Audit follow-up and closure

An audit is deemed as completed upon undertaking all the activities outlined for an audit. In this regard, the remaining bit would be referred to as a subsequent audit, which is mainly composed of follow-ups.

Auditing Standards

Public companies registered by the Security Exchange Commission (SEC) have their external auditing standards maintained by the Public Company Accounting Oversight Board (PCAOB). The PCAOB contains over 15 SEC approved permanent standards and several other interim standards. Statements on Auditing Standards (SASs) are normally issued by the Auditing Standards Board (ASB). SASs work is to prepare and release audit reports that relate to companies not registered by the SEC. These are the standards that must be complied with as stipulated by the American Institute of Certified Public Accountants (AICPA) code of professional conduct. Internal audit is on the other hand guided by the stipulations outlined in the International Professional Practices Framework (IPPF).

Audit Planning

The audit strategy as a whole and audit plan development is always undertaken under a comprehensive audit planning exercise. It is done in conformance to the auditing standard number 9 as outlined in the PCAOB. In this regard, Audit Planning involves a holistic look into auditing by describing its important aspects including nature, extent and timelines involved. The institute of internal auditors, on the other hand, are tasked with offering directions for undertaking audit planning in an internal auditing exercise.

Auditing is an elaborate, comprehensive and complex accounting process which is important for the efficient running of organizations. Sometimes students need auditing homework help to help them improve on their performance. There are online platforms that offer guidance on all the issues about auditing however complex they may be.