Audit

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For other uses, see Audit (disambiguation).

An audit is an evaluation of an organization, system, process, project or product. It is performed by a competent, independent, objective, and unbiased person or persons, known as auditors. The purpose is to make an independent assessment based on management's representation of their financial condition (through their financial statements). Another purpose of the audit is to ensure the operating effectiveness of the internal accounting system is in accordance with approved and accepted accounting standards, statutes, regulations, or practices. It also evaluates the internal controls to determine if conformance will continue, and recommends necessary changes in policies, procedures or controls. Auditing is a part of some quality control certifications such as ISO 9000.

[edit] Financial Audits

Main article: Financial audit

An important type of audit is the financial audit. It is designed to determine whether financial statements are fairly presented in accordance with International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). In the United States, financial audits are required for all publicly registered companies. In addition, financial audits may be performed for private companies, registered charities, and some governmental and public entities. Private companies typically request financial audits year after year because lenders may have required an audit or owners may want to have external unbiased eyes look at the financial statements to determine if the company is complying with all the required accounting principles. Charities would require a financial audit to show the financial status of the organization to potential donors. Governments and government businesses are usually required to be audited by statutes to determine if all the money budgeted has been properly spent. Government financial reports are not always audited by outside auditors. Some governments have elected or appointed auditors.

[edit] Types of Auditors

There are two types of auditors:

• Internal: Those are typically hired by the company. They audit and report to either management or the board of directors or both.

• External (also called outside or independent auditors): They typically work for public accounting firms that are regional, national, or international. They are typically engaged to do the audit by the board of directors.

[edit] Major Audit Companies

There are 4 major companies that compete in the financial audits arena. They form what is known as the Big Four. These companies are international firms and are the most well known outside auditors in the industry. They are as follows in order of size:

1) PricewaterhouseCoopers, also known as PwC

2) KPMG, used to be known as Klienveld Peat Marwick Gordeler

3) Deloitte Touche Tohmatsu, also known as Deloitte

4) Ernst & Young, also known as E&Y

There are many other audit firms competing with the big four. In the US, mid-tier firms such as Grant Thorton and Moss Adams serve many mid-size companies while smaller entities may contract the services of local CPA firms.

In the UK the medium sized firms are also referred to as mid-tier. Many of these firms are international and increasingly are competing for work against the big four, especially following the recent large auditing scandals (eg Worldcom, Parmalat).

[edit] See also

Some examples are:

• Single Audit
• Audit risk
• Clinical audit
• Computer security audit
• Configuration audit (as part of configuration management)
• Conformity assessment audit (ISO, HACCP, JCAHCO)
• Health & Safety Audit
• Environmental audit
• Financial audit (the oldest)
• Information technology audit
• Internal audit
• Management system audit (quality audit, safety audit, environmental audit)
• Performance audit
• Security Audit (not computer-related)
• Software audit
• Telecommunication audit

[edit] External links

• National Information Assurance (IA) glossary
• Audit - Design Dictionary Competitive product analysis.
• Glossary of auditing terms