Auditing

Auditing, the oldest area of practice, remains the largest for many firms. An audit is a сertified public accountants examination of a company’s financial statements in order to express an opinion about the fairness of those statements in accordance with generally accepted accounting principles. When a company wants to borrow funds from a bank or have its stock listed on a stock exchange, it must present statements regarding its financial affairs. Because these statements are prepared by independent auditors, those interested in the information know it has been presented fairly and accurately.

Auditing is an accounting function that involves the review and evaluation of financial records. It is done by someone other than the person who entered the transactions in the records. Not so many years ago, the presence of an auditor suggested that a company was having financial difficulties or that irregularities had been discovered in the records. Currently, however, outside audits are a normal and regular part of business practice. In addition, many corporations, especially the larger ones with complex operations, maintain a continuous internal audit by their own accounting departments.

Many companies employ their own accountants to maintain an internal audit. They continuously review operating procedures and financial records and report to management on the current state of the company’s fiscal affairs. These accountants also report on any deviations from standard operating procedures; that is, the company’s established methods for carrying on its operating and recording functions. The internal auditors also make suggestions to management for improvements in the standard operating procedures. Finally, they check the accounting records in regard to completeness and accuracy, making sure that all irregularities are corrected. Overall, the internal auditors seek to ensure that the various departments of the company follow the policies and procedures established by management.

Independent auditing is done by accountants who are not employees of the organization whose books they examine. An independent auditor who examines company’s records follows certain standards of field work. These deal with the planning and supervision, if necessary, of the audit. The independent auditor must also review internal controls as a basis for the applications of tests of their effectiveness. Furthermore, he or she is responsible for obtaining a reasonable and appropriate amount of evidential material from business papers, ledgers, and other sources in arriving at an opinion on the accuracy of the financial statements.

The reporting standards deal with the contents of the report. The report must state whether the financial statements of the organization have been prepared in accordance with generally accepted accounting principles. Furthermore, these principles must have been observed in the current accounting period in relation to the previous period. Unless the report states otherwise, the auditor verifies that the financial statements can be considered sufficient.

The opinion paragraph of the auditor’s letter meets the standards given immediately above. The opinion is based on a careful examination.