Audit Definition with Example
Audit Definition – “Inspection of financial statement by the auditor which is backed by the evidence of each and every transaction”
It basically concerns with examining the books of account in order to get the accurate financial statements. This results in providing a true and fair report of the company’s operations and transactions. The audit is done both internally as well as externally. The internal audit is done by either employees or the head of department. On the other hand, the external audit is done by an outside auditor. It could be a Chartered Accountant.
Well, the outsider audit is preferred more. The reason behind this is the auditor is independent and have no interest in the business. Hence provides a true and fair analysis of all the financial statements. On the other hand, internal audit involves a person from within the organisation. So the person has definitely has an interest and could impact the audit process negatively.
In India as per Companies Act 2013, all the public listed companies has to audit their books of account from an external auditor. In addition to this, such companies have to audit their final statements in every quarter.
Who Perform Audit?
In India, Chartered Accountants acts as a outside auditor for the companies who are certified from the Indian Institute of Chartered Accountant of India.
In order to understand audit definition more clearly, let’s discuss its process. The process of audit involves basically four steps. These steps are as follows –
Step 1 – In the first step, the clients appoint the auditor by sending a letter to the prospective auditor. The letter also define the role of the auditor as well as the terms of their agreement.
Step 2 – This step deals with the planning part. In involves whether the auditor will audit the entire organisation or some departments of the company. It also consist of the duration of the audit. The could last for a day or even for a week.
Step 3 – The step involves the compilation of the data of the audit. The auditor prepares a report of the findings of the audit.
Step 4 – This is concern with communicating the report to the clients.