Audit — is an assessment of the financial statements and the working process of a certain organization to approve the quality of business operations and accuracy of financial documents. An audit should be conducted regularly to detect the problem in the business processes at the early stages.
This procedure is carried out by an auditor. An auditor is a professional or a juridical entity that accesses and fixes the evidence to report on the degree of a company's assertions that they comply with the standards of business processes.
After the assessment, the auditor draws up the audit report. An audit report is a document that describes the company’s liabilities and assets and provides an examination of the business processes and financial situation of the company.
Purposes of Audit:
- Examine the quality of the working processes;
- Identify the organizational and financial issues;
- Access the precision of the financial documents;
- Verify the validity of transactions;
- Define the way to solve the identified problems and reconcile inconsistencies with good practices.
Types of Audits
There are several types of audits, they differ by the auditor and the subject of the examination. They may vary for different businesses. Certain companies regularly carry out the audits, other ones do it if necessary.
Classification of Audits according to the procedure:
- An External Audit — is an audit performed by a professional auditing company. Numerous independent CPA firms that provide these services. This is an obligatory periodic examination. The main purpose of such an audit is to examine the financial statement. An auditor is selected by the members of the company. The scope of his work is defined by the statute. After the assessment, the auditor draws up an opinion on the quality of the financial statement and submits it to the stakeholders.
- An Enternal Audit — is an audit performed by the auditing department of a firm. This procedure is voluntary, but this process is continuous. The main purpose of this assessment is to check the standard activities and improve them, if necessary. An auditor is selected by the management. Also, the management defines the field of the auditor's assessment and reviews his report. After the examination, the auditor draws up an opinion concerning the efficacy of the current working processes.
Classification of Audits according to the subject of examination:
- Tax Audit. This procedure determines the accuracy of tax returns. The auditor examines the tax liabilities to identify the possible overpayment or underpayment. Usually, the tax audit is conducted by the relevant state authority.
- Financial Audit. This procedure assesses the objectivity and accuracy of a financial documentation. The auditor examines the cash flows, working procedures, a ratio of income, and expenditure. After that, the auditor draws up a report concerning the actual financial state of the company.
- Operational Audit. This procedure accesses the company's procedures, goals, and operational results. It can be both external and eternal. The purpose of this audit is to evaluate the business process, find the possible problems, and find a way to improve them.
- Compliance Audit. This procedure assesses the business policies and their compliance with the current state or international standards. The goal of this assessment is to ascertain whether the company fulfills its obligations before the employees or stakeholders.
- Informational System Audit. This procedure accesses the software and IT systems. Also, the auditors should check the security of personal data. The goal of this assessment is to identify the possible concerns in data storage and vulnerability before the fraud and theft of information.
- Payroll Audit. This procedure accesses the process of payroll processes. Usually, these audits are internal. The business should organize this type of audit regularly to check the errors in the payroll process and to avoid an external audit.
- Pay Audit. This procedure accesses the pay gap among your workers. It helps to identify the unequal payment and determine the pay compression.