what is an audit

What is an Audit?

Learn about Audit with Arman Kohli

Movie Case Study

The scene shows Yuvraj Ajay Singh (played by Neil Nitin Mukesh) who is complaining about how his brother disallowed all his bills. Chirag Singh (played by Arman Kohli) is the manager of the royal family who is misdirecting Ajay against his brother. He mentions that kings do not check vouchers and cheques in a transaction implying misuse of funds by him.

In this blog, Learning Perspectives will explore the meaning of audit.

What is an Audit?

An audit is the checking & verification of financial statements. All organizations conduct financial audits of the company. It is typically done by auditors. A company hires an internal auditor who verifies the financial statements. A third party is also hired by the company and these are the external auditors of the company.

Types of Audits

There are various types of audits that are conducted by auditors.

Financial Audit

As the name suggests, this audit deals with the verification and checking of financial statements. It is checking of vouchers and supporting documents to the various line items mentioned on the financial statements. Also checking whether the company is adhering to the GAAP and IFRS standards or not. If not, the auditors offer checkpoints so that the company can improve its financials before publishing them. This type of audit is performed by both internal & external auditors.

Compliance Audit

This audit requires companies to be in adherence to the policies, laws, rules, and industry standards. This audit helps to mitigate the risk of non-compliance and boosts high ethical standards.

Operational Audit

This audit basically deals with checking the internal processes of the company. This would involve whether the company is meeting deadlines and following the standard processes.

Forensic Audit

These audits are undertaken to investigate suspicious activities that are related to embezzlement, fraud, tax evasion, money laundering, etc. These audits are conducted by forensic auditors who work closely with legal agencies to uncover any fraud.

Auditors give both qualified and unqualified opinions. The unqualified opinion indicates that the financial statements are prepared in accordance with governing practices such as GAAP (generally accepted accounting principles) or IFRS (international financial reporting standards). They don’t provide any interpretation or judgment on the statements. Auditors provide their findings and suggestions to the company in a report. Audit is crucial for any company as it helps improve processes and production processes. It also helps in finding any inconsistencies and prevents fraud.

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