What You Need To Know About Auditing?

What You Need To Know About Auditing?

What is Auditing?

Auditing is a detailed evaluation or examination of financial reports or records of an organisation or business. It is used to offer confidence to stakeholders that the organisation’s or business’s records are accurate.

Audits look at the different accounting rules, financial statements, journal entries, and other bookkeeping duties. Accountants can be involved in an engagement team to do an audit for both internal and external clients. The big four accounting firms usually audit large publicly traded companies.

Financial statements that include an income statement, cash flows, balance sheet, and disclosure notes are evaluated against the criteria in GAAP. The audit process culminates in the issuance of an audit report or opinion where the findings of the auditor are communicated to the users of the audited documents.

There are different kinds of audits that can be performed by expert auditors. These include financial audits, which is the most common one conducted by CPAs. Internal audits, forensic audits, operational audits, and compliance audits are the other types.

Audit of financial statements or financial audit is an audit that examine financial statements while internal audits are done to make sure that a company is compliant with applicable accounting principles. Forensic audits are audits that investigate white collar crimes which review accounting statements and transactions. Operational audits try to confirm that policies and procedures are followed and that they lead to best outcomes. Finally, compliance audits are focused on the compliance of an organisation to external laws and regulations.

The Formal Definition of an Audit

In more formal terms, an audit is an accumulation and evaluation of evidence to determine and report the degree of correspondence between the information that was presented and an established criteria like the GAAP. Audits must be done by competent and independent individuals or entity.

The difference between accounting and auditing.

Auditing is a more specialised field of accounting, but these two activities go hand in hand. Auditors cannot be totally unaware of accounting rules. Auditors should be competent and qualified in accounting to properly conduct audits.

Accounting involves the recording, summarising and classification of transactions in line with GAAP while an audit is an accumulation and evaluation of evidence. Accounting involves the preparation of financial statements and bookkeeping while audit determines if the financial statements were prepared according to GAAP.

The difference between an internal auditor and an external auditor.

There are two types of auditors in the auditing business. These are the internal and external auditors.

Internal auditors are actual employees of a business or company. Their duty is to conduct general auditing procedures all throughout the year to ensure that all record-keeping and accounting are being done properly and for external audits to become more feasible. Internal auditors usually only exist in large companies. Internal auditors are tasked to ensure that the firm is in compliance with increasingly complex regulations and standards. They also make recommendations to management on how to increase its efficiency and effectiveness in its operations.

External auditors, on the other hand, refer to public accountants who have different clients and conduct the audit together with an engagement team. These are the usual public accounting firms that audit large public companies and large or big private organisations or companies. External auditors are employed by firms providing accounting or audit services, only coordinate and interact with their clients through the audit process. These auditors are in charge of looking over the accounts and business dealings of a company or firm and ensure that their practices meet legal compliance standards. They check if the financial accounts presented are a true and reasonable picture of the firm’s position and show the real profit or loss of the firm for a year.

To become an auditor, an aspirant should pass a series of examinations and some specialised training.

Types of Assurance Engagements

An assurance engagement refers to activities performed by an auditor to enhance the reliability of records or situations. Assurance differ in terms of tasks and levels. In these situations, the CPA should attain a contract with the client before auditing.

Auditing provides a high level of assurance and provides a clear statement whether the financial records or statements are prepared in accordance with GAAP.

A review assesses the plausibility of the financial statements. It provides a moderate level of assurance but does not accumulate evidence.

A compilation provides no assurance and is simply a compilation of financial statements which checks arithmetical accuracy.

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.