An audit is when an auditor examines or inspects different books of accounts, followed by a physical inventory assessment, to ensure that all departments are following proper procedures of recording transactions. It is implemented to ensure that the financial statements given by the organization are accurate. Internally, staff or department heads can conduct audits, and externally, an outside firm or an independent auditor can conduct audits.
The purpose is for an independent organization to audit and verify the accounts to guarantee that they are done fairly and that there is no fraud or misinterpretation. Before they can announce their quarterly results, all publicly traded companies must have their accounts examined by an independent auditor.
The auditing procedure is divided into four steps. The first is to describe the auditor’s position and engagement terms, which is commonly done in the form of a letter signed by the client. The second step is planning the audit, which includes specifics such as timelines and departments that the auditor would examine. The auditor is responsible for a specific department or the entire organization. Depending on the nature of the audit, it could span a day or perhaps a week.
The next significant stage is to compile the data gathered during the audit. When an auditor analyzes a company’s accounts or examines its major financial statements, the results are frequently documented in a report or prepared in a precise way. The final and most crucial aspect of an audit is reporting the findings. In the auditor’s report, the findings are documented.