What Is Auditing

What is Auditing?

Have you ever wondered if an accountant were to make a mistake would anyone know? No one would want financial statements or records that were not accurate right? Did you ever think that an employee could be dishonest and get away with it? Maybe it is possible, but this is supposed to be checked on. There are various specialized areas of accounting (“Accounting and Bookkeeping” 1). Auditing happens to be one of those specialized areas. Auditing is important and should be done.

Auditing is when the financial records and statements are examined and verified for accuracy (“Accounting and Bookkeeping” 1). Not just anyone can audit financial records and statements. “Audits are carried out by suitably qualified auditors who are employed to scrutinise the accounts of business entities including limited companies, charities, trusts and professional firms.” (Gillespie, Lewis, Hamilton 281). These auditors are called CPAs which mean Certified Public Accountants (“Accounting and Bookkeeping” 1). “All companies with the exception of certain small companies, are required by law to have their accounts audited annually by a professionally qualified auditor” (Gillespie, Lewis, Hamilton 281).

There are advantages of commissioning an audit even if it’s a small company it maybe a good idea to still do one. A couple advantages of commissioning an audit are as follows: If an account is audited it will carry more weight with tax authorities than one that is not audited. There may be disputes between partners and managers about certain accounts, but if it is audited it is easily solved. Last but definitely not least dealings with banks could be improved (Gillespie, Lewis, Hamilton 281).

An auditor examines accounts with detail by receiving an amount of checks on figures to make sure that the financial statements show a fair view of the firm’s financial position at the end of the period (Gillespie, Lewis, Hamilton 281). Once the auditor is done examining the financial records and statements and has the results, the auditor then makes a report. The report is called an audit report and it is strictly just the auditors’ opinion (Gillespie, Lewis, Hamilton 281).

An auditor is expected to give an honest report. It is the responsibility of the auditor to report on significant uncertainties such as fraud, errors, and irregularities that are detected in the financial statements (Duska 120). This audit is very important because the client is expecting the correct information to go by. An auditor is also supposed to look out for the best interest of the public before even thinking about the best interest of the client (Duska 108). An auditor should not look out for the client just because they were hired by them and try to make it seem like everything is okay. The public wants the truth, who would not? “If the audit is inadequate and people suffer from misinformation that the accountants should have uncovered, the accounting firm might get sued...” (Duska 108). There are two different types of auditors that will be discussed and they are internal auditors and external auditors.

First of all an internal auditor is one that is within their own company that examines the financial records to find errors and to check the honesty of their employees.” (“Accounting and Bookkeeping” 1). In large companies, this is an ongoing procedure” (“Auditing” 1). An internal auditor “… should involve the appraisal of the firm’s activities, be independent of the activities to be appraised, and be a service which offers constructive service to management.” (Gillespie, Lewis, Hamilton 285). In order for an internal auditor to complete these tasks there has to be internal control within the company. Internal controls are setup to ensure various things such as: the effective and efficient use of resources, the reliability of all information, making sure that external laws and regulations are being followed along with internal policies, plans and