An audit is an activity that evaluates a person, a process, an organization, or product. In finance, an audit is geared specifically towards the evaluation of the financial records of a company – in part or as a whole. This is also termed financial audit or audit of financial statements.
The goal of an audit is to validate or ascertain information. When a company audits financial statements, the aim is to perform checks and counterchecks to determine whether or not the stated data is consistent with reality.
Companies, especially those owned by shareholders, place high value in financial audits because they promote accountability. Financial audits ensure that the actual expenditure and actual income match the stated figures.
Financial audits are designed to determine misstatements. Misstatements are instances of false or missing information. The reason behind a misstatement is immaterial – it could be due to fraud (something done on purpose) or to error.
Financial audits are usually carried out by independent entities. This ensures that the gathered information and subsequent analysis are not marred by subjectivity. The independent auditing company must remain objective while maintaining a good business relationship with the company being audited. Improvements are made on a continuing basis to ensure quality audits of financial statements.
