Auditing is an accounting approach on financial statement of an institution which is conducted by either internal employees or external parties. The main purpose of auditing is to determine whether the financial statements are in line with certain criteria. Generally, these criteria involve international accounting standards. However, auditing can be conducted on the cash basis or some other appropriate accounting criteria acceptable by the organization. In so doing, auditing requires auditors to obtain evidence to proof that financial records do not have any cases of frauds.
The Scope of Auditing Process
The accounting report provided by the auditor opinion is based on the entire financial records of the organization. There are three ways in which auditors’ report can be generated. Unqualified auditors’ report; which presents fair financial reports on specific aspects, qualified auditor’s report; which fair financial report of the general accounting records of the organization and a disclaimer report; whereby the auditor’s report gives reasons for withholding his or her opinion. However, in an adverse report can be presented where the accounting records are not fairly recorded. In this case, the auditor’s report should explain the size and nature of the misstatement as well as state the opinion in which the accounting records are not fairly presented.
Generally, financial audits are carried out by organizations or individuals who are professionals in formulation accounting reports. Auditing is among the most assurance functions carried out by accounting organizations. Most accounting firms employ internal auditors not just to examine the accounting reports but to focus majorly on the internal management of the firm. In some cases, accounting firms may decide hires external auditors to place limited dependence on the internal auditors.
Importance of Audit
Auditing promotes accuracy and transparency in the accounting reports provided by the organization management, and therefore helps the organization to reduce case of unethical practices within the firm. Internationally, the International Auditing and Assurance Standards Board (IAASB) generated an International Standards for Auditing (ISA) which acts as the bench marks for the process of auditing. Almost all accounting jurisdiction require all auditing process to follow the international standards of auditing.
However, the opinion of the auditor offers only a reasonable assurance and not a total assurance, which an organization uses to determine the fairness of the financial report. The aim of auditing is to provide a sovereign examination of the accounting reports, which increases the credibility and value accounting reports generated by the management. These increase the financial confidence of the users and minimize the investor’s risks on the capital.
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