What is an Audit and What Does it Entail?

An audit is an assessment of an organization's financial report, as presented in the annual report, conducted by a person independent of that organization. This process is done to verify the accuracy of the financial statements provided by the organization. The financial report includes a balance sheet, an income statement, a statement of changes in net worth, a statement of cash flow, and notes that include a summary of important accounting policies and other explanatory notes. Government agencies, such as the Securities and Exchange Commission (SEC), require publicly traded companies to conduct an independent audit to validate their annual financial reports.During an IRS audit, an agent will ask you questions and request specific documentation to support the tax deductions, forms of income, and tax credits that you have requested on your tax returns.

This will allow the auditing process to run smoothly and will avoid communication problems between the team and the auditor. It is advisable to keep a detailed list of all the records that you provide to the auditor during the process and to keep a record of whether any of your documents have been carried out off-site.The outcome of the audit determines that changes need to be made and you agree to make the proposed modifications. If you agree with the findings of the audit, you will be asked to sign the examination report or a similar form, depending on the type of audit performed. The results of an external audit assure third parties that the company's finances are correct and secure.Audits tend to focus less on financial statements and more emphasis is placed on the company's operations and corporate governance.

Audits are tools that management should use to carry out a general evaluation of their business and of each of its departments. Once they consider that their research is satisfactory, the auditor will present their report and express their objective opinion.Publicly traded companies are legally required to conduct annual external audits due to the regulations of the Securities Act of 1933 and the Securities Exchange Act of 1934.The audited departments will also be involved in implementing the necessary changes recommended by the auditor, such as new training requirements or reviews of compliance policies. It's important to remember that auditing firms shouldn't have any kind of financial interest in their company's industry either.The audit process and its results are crucial and critical for your company, so finding and choosing the right professional for the job is essential. The main purpose of an external audit is to validate a company's financial statements and ensure the accuracy of financial reports.

This can occur when the auditor cannot remain unbiased with the company or cannot access the necessary information. During an audit, different financial statements are examined, such as the income statement, cash flow statement, and balance sheet.