Audit

For other uses, see Audit (disambiguation).

Auditing redirects here. For the Scientology practise,
see Auditing (Scientology).
An audit is a systematic and independent examina-

ter.
The word audit is derived from a Latin word audire
which means to hear.[3][4] During the medieval times
when manual book-keeping was prevalent, auditors in
Britain used to hear the accounts read out for them and
checked that the organisations personnel were not negligent or fraudulent.[5]

1 Auditing Australia

Some typical stages in the audit process

tion of books, accounts, statutory records, documents

and vouchers of an organization to ascertain how far the
nancial statements as well as non-nancial disclosures
present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly
maintained by the concern as required by law. Auditing
has become such a ubiquitous phenomenon in the corporate and the public sector that academics started iden- Australian National Audit Oce
tifying an Audit Society.[1] The auditor perceives and
recognises the propositions before him/her for examina- Audit standards in Australia dene 'Audit' as
tion, obtains evidence, evaluates the same and formulates
an opinion on the basis of his judgement which is communicated through his audit report.[2]
An ocial examination and verication of accounts
and records, especially of nancial accounts, and a
Any subject matter may be audited. Audits provide third
report or statement reecting an audit; a nal stateparty assurance to various stakeholders that the subject
ment of account.
matter is free from material misstatement. The term is
most frequently applied to audits of the nancial information relating to a legal person. Other areas which are
This includes the inspection or examination of a
commonly audited include: secretarial & compliance aubuilding or other facility to evaluate or improve its
dit, internal controls, quality management, project manappropriateness, safety, eciency, or example:
agement, water management, and energy conservation.
As a result of an audit, stakeholders may eectively evaluate and improve the eectiveness of risk management,
control, and the governance process over the subject mat-

An energy audit can suggest ways to reduce home fuel

bills.
1

Information technology audit

Main article: Information technology audit

Main article: Software audit review

ACCOUNTING

cation of facts to ascertain that the cost of the product

has been arrived at, in accordance with principles of cost
accounting.
In most nations, an audit must adhere to generally accepted standards established by governing bodies. These
standards assure third parties or external users that they
can rely upon the auditors opinion on the fairness of nancial statements, or other subjects on which the auditor
expresses an opinion.

An information technology audit, or information

systems audit, is an examination of the management controls within an Information technology (IT)
infrastructure. The evaluation of obtained evidence determines if the information systems are safeguarding assets, maintaining data integrity, and operating eectively
3.1 Integrated audits
to achieve the organizations goals or objectives. These
reviews may be performed in conjunction with a nancial
In the US, audits of publicly traded companies are govstatement audit, internal audit, or other form of attestaerned by rules laid down by the Public Company Action engagement.
counting Oversight Board (PCAOB), which was established by Section 404 of the SarbanesOxley Act of 2002.
Such an audit is called an integrated audit, where auditors,
in addition to an opinion on the nancial statements, must
3 Accounting
also express an opinion on the eectiveness of a companys internal control over nancial reporting, in accorMain article: Financial audit
dance with PCAOB Auditing Standard No. 5.[8]

There are also new types of integrated auditing becoming available that use unied compliance material (see the
unied compliance section in Regulatory compliance).
Due to the increasing number of regulations and need
for operational transparency, organizations are adopting
risk-based audits that can cover multiple regulations and
standards from a single audit event. This is a very new
but necessary approach in some sectors to ensure that all
Financial audits are performed to ascertain the validity the necessary governance requirements can be met withand reliability of information, as well as to provide an out duplicating eort from both audit and audit hosting
assessment of a systems internal control. As a result of resources.
this, a third party can express an opinion of the person
/ organisation / system (etc.) in question. The opinion
given on nancial statements will depends on the audit 3.2 Assessments
evidence obtained.
The purpose of an assessment is to measure something
Due to constraints, an audit seeks to provide only reason- or calculate a value for it. Although the process of proable assurance that the statements are free from material ducing an assessment may involve an audit by an indeerror. Hence, statistical sampling is often adopted in au- pendent professional, its purpose is to provide a measuredits. In the case of nancial audits, a set of nancial state- ment rather than to express an opinion about the fairness
ments are said to be true and fair when they are free of of statements or quality of performance.[9]
material misstatements a concept inuenced by both
quantitative (numerical) and qualitative factors. But recently, the argument that auditing should go beyond just 3.3 Auditors
true and fair is gaining momentum.[6] And the US Public
Company Accounting Oversight Board has come out with Auditors of nancial statements & non-nancial informaa concept release on the same.[7]
tion (including compliance audit) can be classied into
Cost accounting is a process for verifying the cost of man- three categories:
Due to strong incentives (including taxation, misselling
and other forms of fraud) to misstate nancial information, auditing has become a legal requirement for many
entities who have the power to exploit nancial information for personal gain. Traditionally, audits were mainly
associated with gaining information about nancial systems and the nancial records of a company or a business.

ufacturing or producing of any article, on the basis of accounts measuring the use of material, labor or other items
of cost. In simple words, the term, cost audit means a
systematic and accurate verication of the cost accounts
and records, and checking for adherence to the cost accounting objectives. According to the Institute of Cost
and Management Accountants of Pakistan, a cost audit
is an examination of cost accounting records and veri-

External auditor / Statutory auditor is an independent rm engaged by the client subject to the audit, to express an opinion on whether the companys
nancial statements are free of material misstatements, whether due to fraud or error. For publicly
traded companies, external auditors may also be required to express an opinion over the eectiveness

3.3

Auditors
of internal controls over nancial reporting. External auditors may also be engaged to perform other
agreed-upon procedures, related or unrelated to nancial statements. Most importantly, external auditors, though engaged and paid by the company being
audited, should be regarded as independent

Cost auditor / Statutory Cost auditor is an independent rm engaged by the client subject to the Cost
audit, to express an opinion on whether the companys Cost statements and Cost Sheet are free of
material misstatements, whether due to fraud or error. For publicly traded companies, external auditors may also be required to express an opinion over
the eectiveness of internal controls over Cost reporting. These are Specialised Persons called Cost
Accountants in India & CMA globally either Cost &
Management Accountants or Certied Management
Accountants.
Further information: Cost auditing
Government Auditors review the nances and practices of federal agencies. These auditors report
their nds to congress, which uses them to create
and manage polices and budgets. Government auditors work for the U.S. Government Accountability Oce, and most state governments have similar
departments to audit state and municipal agencies.
Further information: Internal auditors
Secretarial auditor / Statutory Secretarial auditor is
an independent rm engaged by the client subject to
the audit of Secretarial & applicable laws / Compliances of other applicable laws, to express an opinion
on whether the companys Secretarial records and
Compliance of applicable laws are free of material
misstatements, whether due to fraud or error and
inviting heavy nes or penalties. For Bigger Public companies, external Secretarial auditors may also
be required to express an opinion over the eectiveness of internal controls over compliances system
management of the Company. These are Specialized Persons called Company Secretaries in India
who are the members of Institute of Company Secretaries of India and holding Certicate of Practice.
(http://www.icsi.edu/)
The most commonly used external audit standards are the
US GAAS of the American Institute of Certied Public
Accountants; and the ISA International Standards on Auditing developed by the International Auditing and Assurance Standard
Internal auditors are employed by the organisations
they audit. They work for government agencies (federal, state and local); for publicly traded companies; and for non-prot companies across all industries. The internationally recognised standard setting body for the profession is the Institute of Internal Auditors - IIA (www.theiia.org). The IIA has

3
dened internal auditing as follows: Internal auditing is an independent, objective assurance and
consulting activity designed to add value and improve an organisations operations. It helps an organisation accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the eectiveness of risk management, control,
and governance processes.[10] Thus professional internal auditors provide independent and objective
audit and consulting services focused on evaluating
whether the board of directors, shareholders, stakeholders, and corporate executives have reasonable
assurance that the organizations governance, risk
management, and control processes are designed
adequately and function eectively. Internal audit
professionals (Certied Internal Auditors - CIAs)
are governed by the international professional standards and code of conduct of the Institute of Internal Auditors.[11] While internal auditors are not
independent of the companies that employ them,
independence and objectivity are a cornerstone of
the IIA professional standards; and are discussed at
length in the standards and the supporting practice
guides and practice advisories. Professional internal
auditors are mandated by the IIA standards to be independent of the business activities they audit. This
independence and objectivity are achieved through
the organizational placement and reporting lines of
the internal audit department. Internal auditors of
publicly traded companies in the United States are
required to report functionally to the board of directors directly, or a sub-committee of the board of
directors (typically the audit committee), and not to
management except for administrative purposes. As
described often in the professional literature for the
practice of internal auditing (such as Internal Auditor, the journal of the IIA) -,[12] or other similar
and generally recognized frameworks for management control when evaluating an entitys governance
and control practices; and apply COSOs Enterprise Risk Management-Integrated Framework or
other similar and generally recognized frameworks
for entity-wide risk management when evaluating
an organizations entity-wide risk management practices. Professional internal auditors also use Control
Self-Assessment (CSA) as an eective process for
performing their work.
Consultant auditors are external personnel contracted by the rm to perform an audit following
the rms auditing standards. This diers from
the external auditor, who follows their own auditing standards. The level of independence is therefore somewhere between the internal auditor and
the external auditor. The consultant auditor may
work independently, or as part of the audit team that
includes internal auditors. Consultant auditors are
used when the rm lacks sucient expertise to audit certain areas, or simply for sta augmentation

8 OPERATIONS AUDIT
when sta are not available.

Performance audits

Regular Health Check Audits: The aim of a regular health check audit is to understand the current
state of a project in order to increase project success.
Regulatory Audits: The aim of a regulatory audit is
to verify that a project is compliant with regulations
and standards. Best practices of NEMEA Compliance Centre describe that, the regulatory audit must
be accurate, objective, and independent while providing oversight and assurance to the organisation.

Safety, security, information systems performance, and

environmental concerns are increasingly the subject of
audits.[13] There are now audit professionals who specialize in security audits and information systems audits.
With nonprot organisations and government agencies,
there has been an increasing need for performance audits,
examining their success in satisfying mission objectives. Other forms of Project audits:
Formal: Applies when the project is in trouble, sponsor agrees that the audit is needed, sensitivities are high
,and need to be able prove conclusions via sustainable ev5 Quality audits
idence.
Informal: Apply when a new project manager is provided, there is no indication the projects in trouble and
there is a need to report whether the project is as opposed
Quality audits are performed to verify conformance to to where its supposed to Informal audits can apply the
standards through review of objective evidence. A sys- same criteria as formal audit but there is no need for such
tem of quality audits may verify the eectiveness of a a in depth report or formal report.[15]
quality management system. This is part of certications
such as ISO 9001. Quality audits are essential to verify the existence of objective evidence showing conformance to required processes, to assess how successfully 7 Energy audits
processes have been implemented, and to judge the effectiveness of achieving any dened target levels. Quality Main article: Energy audit
audits are also necessary to provide evidence concerning
reduction and elimination of problem areas, and they are
a hands-on management tool for achieving continual im- An energy audit is an inspection, survey and analysis of
energy ows for energy conservation in a building, proprovement in an organization.
cess or system to reduce the amount of energy input into
To benet the organisation, quality auditing should not the system without negatively aecting the output(s).
only report non-conformance and corrective actions but
also highlight areas of good practice and provide evidence of conformance. In this way, other departments
may share information and amend their working practices 8 Operations audit
as a result, also enhancing continual improvement.
Main article: Quality audit

Further information: Operational audit

Project management[14]

An operations audit is an examination of the operations

of the clients business. In this audit the auditor thoroughly examines the eciency, eectiveness and economy of the operations with which the management of the
entity (client) is achieving its objective. The operational
audit goes beyond the internal controls issues since management does not achieve its objectives merely by compliance of satisfactory system of internal controls. Operational audits cover any matters which may be commercially unsound. The objective of operational audit is to
examine Three Es, namely: Eectiveness doing the
right things with least wastage of resources. Eciency
performing work in least possible time. Economy balance between benets and costs to run the operations

A project audit provides an opportunity to uncover issues,

concerns and challenges encountered during the project
lifecycle. Conducted midway through the project, an
audit aords the project manager, project sponsor and
project team an interim view of what has gone well, as
well as what needs to be improved to successfully complete the project. If done at the close of a project, the audit
can be used to develop success criteria for future projects
by providing a forensic review. This review identies
which elements of the project were successfully managed
and which ones presented challenges. As a result, the review will help the organisation identify what it needs to do
to avoid repeating the same mistakes on future projects
A control self-assessment is a commonly used tool for
completing an operations audit.[16]
Projects can undergo 2 types of Project audits:[13]

Forensic audits

11 References

Also refer to forensic accountancy, forensic accountant

or forensic accounting. It refers to an investigative audit
in which accountants with specialised on both accounting
and investigation seek to uncover frauds, missing money
and negligences

10

[2] Audit assurance.

[3] Evolution of auditing (PDF). David Publishing.
[4] Assurance, Auditing and. Chapter 1, Volume 1: Institute of Chartered Accountants of India. p. 1 http://www.
icai.org/post.html?post_id=6193. Missing or empty |title= (help)

See also

Academic audit

[5] Derek Matthews, History of Auditing. The changing audit

process from the 19th century till date. Routledge-Taylor
& Francis Group. p. 6.

Accounting
Big Four auditors
Clinical audit
Comptroller,
Comptroller
General,
Comptroller General of the United States

[1] Power, Michael. 1999. The Audit Society: Rituals of

Verication. Oxford: Oxford University Press.

and

Continuous auditing
COSO framework, Risk management
EarthCheck
Financial audit, External auditor, Certied Public
Accountant (CPA), and Audit risk
Independent review

[6] McKenna, Francine. Auditors and Audit Reports: Is The

Firms John Hancock Enough?". Forbes. Retrieved 22
July 2011.
[7] CONCEPT RELEASE ON POSSIBLE REVISIONS
TO PCAOB STANDARDS RELATED TO REPORTS
ON AUDITED FINANCIAL STATEMENTS (PDF).
Retrieved 22 July 2011.
[8] Auditing Standard No. 5. pcaobus.org. Retrieved
2016-06-28.
[9] Ladda, R.L. Basic Concepts Of Accounting. Solapur:
Laxmi Book Publication. p. 58. ISBN 978-1-312-161306.
[10] Pages - Denition of Internal Auditing. Na.theiia.org.

2000-01-01. Retrieved 2013-09-02.

Information technology audit, Information technology audit process, History of information technol[11] Pages - International Professional Practices Framework
ogy auditing, and Auditing information security

Internal audit
Value for Money Audit
Audit Plan
INTOSAI (International Organization of Supreme
Audit Institutions)
Lead Auditor, under the Chief Audit Executive, or
Director of Audit
Quality audit
Cost audit
Technical audit
Management audit
Operational audit
Risk based audit

(IPPF)". Na.theiia.org. 2000-01-01. Retrieved 2013-0902.

[12] Professional internal auditors, in carrying out their

responsibilities, apply COSOs Integrated FrameworkInternal Control. Theiia.org.
[13] Dierent Types of Audits (June 2013) Auditronix Guidance Note
[14] Stanleigh, Micheal (2009).
UNDERTAKING A
SUCCESSFUL PROJECT AUDIT (PDF). PROJECT
SMART. Retrieved 2016. Check date values in: |accessdate= (help)
[15] Clarke. K, Walsh. K & Flanagan. J (2015). How prevalent are post-completion audits in australia. Accounting,
Accountability & Performance,. How prevalent are postcompletion audits in australia. Accounting, Accountability & Performance,. Check date values in: |access-date=
(help);
[16] Gilbert W. Joseph and Terry J. Engle (December 2005).
The Use of Control Self-Assessment by Independent Auditors. The CPA Journal. Retrieved 10 March 2012.

12 FURTHER READING

12

Further reading

Amat, O. (2008). Earnings management and audit

adjustments: An empirical study of IBEX 35 constituents. Available at SSRN 1374232.

13
13.1

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