Audit Explained

Audit Explained

An audit is an independent and systematic examination or checking of books, statutory records, accounts, vouchers and documents of an organisation to investigate how far the financial statements and non-financial disclosures are true and fair. It attempts to keep books of accounts properly maintained as required by law. Auditors should recognise the propositions before them before an examination, find evidence, evaluate these and come up with an opinion based on his judgment which is usually communicated through an audit report.

Almost any subject matter can be audited. During ancient times, the audit was considered a safeguard. It provided assurance to third-parties and to stakeholders that the matter being investigated or examined is free from misstatements. It is usually applied to audits of financial information related to a legal person. Other commonly audited areas include compliance and secretarial audit, quality management, internal controls, project management, water management, and energy conservation.

Through the results of audits, stakeholders may effectively evaluate and improve the effectiveness of control, risk management, and governance process over the subject matter.

The most important work or duty of an auditor is detecting fraud. However, in some countries like the US, auditing was mainly viewed as a verification of bookkeeping details.

Types of Audits

Information technology audits. This is also known as an information systems audit. It aims to examine management controls within an IT infrastructure. It attempts to determine if the information systems are safeguarding assets, maintains data integrity and if they operate effectively in trying to achieve the organisation’s objectives and goals. They are usually done in conjunction with internal audit or financial statement audits.

Accounting. Formulated opinions from an accounting audit of financial statements depend on the evidence obtained from the audit. It is a legal requirement for many entities who have the ability to exploiting financial information for personal gains. Financial audits are made to assess the validity and reliability of the information. It also attempts to provide an assessment of a system’s internal control. The auditor is given the chance to provide an opinion of the person, system, organisation in question.

Integrated audits. These are audits of publicly traded companies governed by the rules of the Public Company Accounting Oversight Board (PCAOB). Auditors are not only given a chance to provide an opinion about the financial statement of a company but can also express an opinion on the effectiveness of a company’s internal control over financial reporting.

Assessments. The purpose of an assessment is to provide measurement than express an opinion regarding the fairness of statements or the quality of performance.

Performance audits. This type of audit is an independent examination of a function, program, operation or the management systems and procedures of a government or non-profit entity. It attempts to assess if the entity is achieving economy, effectiveness, and efficiency in the use of available resources. The subject of this type of audit includes environmental concerns, safety, information systems performance and security.

Quality audits. To verify conformance to standards, quality audits are performed. They review the objective evidence. A quality audit for a system will try to verify the effectiveness of the quality of a system’s management. They are necessary in providing evidence regarding the reduction and elimination of problem areas. They are hands-on management tools that can help achieve continuous improvement in the organisation.

Project audits. This type of audit is an opportunity to uncover issues, challenges, and concerns faced during a project’s lifecycle. They are usually conducted midway through the project. It can give the project manager, sponsor and the team a view of what has gone well and what needs to be improved to successfully complete the project. It can also be used in developing success criteria for future projects through a forensic review. This review determines the elements of the project that were successfully managed and those that have presented challenges. This will give the organisation an idea of what mistakes to avoid and prevent in future projects.

Energy audits. This type of audit is an inspection, analysis, and survey of energy flow for purposes of energy conservation in a building, system or process. This is done to reduce the amount of energy input into the system without negatively affecting outputs.

Operations audits. This type of audit examines the operations of a business. It examines the effectiveness, efficiency, and economy of the operations of a business.

Forensic audits. This is an investigative type of audit in which accountants seek to uncover negligences, missing money and to uncover frauds. This is also sometimes referred to as forensic accounting or accountancy.

Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit,  and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.

Call our Melbourne team today on 03 9088 2242, or email us via  audit@kingstonknightaudit.com.au.

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