#1 Audit by TimothyHughes 03.01.2023 23:26

Audit is a legal examination of an authority, company or official, carried out by a designated educated and independent person (auditor), which includes gathering information about each company. It also implies evaluating this information by verifying the accuracy of the calculations according to certain criteria that allow them to be certified.

Aim of the audit

The most obvious objective of any audit is to provide an independent and fair opinion of the company's financial condition. The auditor's objective is to examine and report whether the data in the annual financial report reflects the true state of the company. During the audit, the auditor is required to follow all auditing standards set by government agencies.

Besides providing confirmation of the annual financial report, other tasks of the audit include:

Independent expertise of the financial creditability of the company;

Practical recommendations to the company to improve in the next financial period.

The above-mentioned tasks shall be portrayed in the final report as the auditor accomplishes his/her examination. Auditors’ qualification and expertise level often refers to International Standards of Auditing (IFAC).

Audit risk

Audit risk happens when an auditor draws unqualified report or expresses false opinion. The reasons for such function may be prescribed to human factors (detection risk), willingful fraud, material misstatement or internal misinterpretations (inherent and control risk).

Types of audits

Most common types of audit services include:

External audit (statutory audit)

These are the most widely used audit services. Examination of the accuracy of the financial statements is entrusted to external and independent auditor, who cannot be connected to the company or have any interest in the outcome of audit (no conflict of interests). The annual financial statement is certainly the main resource of accountability of the company. Since the financial statement is prepared and approved by the board of the directors, the shareholders of the company would rely on the external way to verify the report. Therefore, they invite external auditors. Moreover, regulations of many countries prescribe to run statutory audit on annual basis;

Internal audit (operational audit)

This is a voluntary pocedure of the organisation, willing to examine the effectiveness of inner control, verify and monitor possible fraud, check financial data, examine operational process and other activities. Basically, any company may conduct it for its own sake;

Tax audit

Tax audits are performed by tax authorities within regular intervals in some jurisdictions or in other randomly chosen countries. The purpose of the tax audit is to check company’s tax liabilities and to analyse accuracy of the filed tax returns;

Forensic audit

This is a special investigational audit conducted by legal officers and is often used in courts and investigation processes in order to determine frauds, tax evasion cases, money laundering and other illiegal actions within the framework of the company or its responsible officers.

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