22 Dec What is a financial audit
An audit is a review process, in which an outside party examines the financial records of a company or organization. Audits are used to check on and improve an organization’s accounting practices, risk management processes, and internal controls over financial reporting. A person conducting an audit must have sufficient skill and experience to understand the legal requirements for certain industry areas – such as insurance, banking, investment funds – to obtain proper authorization from authorities before they conduct their investigations. An auditor needs to be objective and impartial, yet also able to understand the financial information they examine.
What is a financial audit
A financial audit is an independent examination of a company’s or organization’s finances. The auditor must be able to lead a team of auditors and other staff as they examine the business’s accounting records, evaluate its performance, and test processes such as internal control mechanisms to decide whether their information is reliable and consistent with their reporting. An auditor who determines that an organization or company has not maintained the proper levels of internal control would issue an adverse opinion on those controls. An organization that is not financially sound, would be likely to experience financial problems. A financial audit will help prevent a company from becoming insolvent or collapsing.
How does it work
First, the auditor must decide whether he or she needs to “audit” the company or organization at all. If they do, they must ensure that the accounting records and procedures are in line with the government requirements for the industry and may require that certain internal controls be tested to perform their initial evaluation. Once they determine that an audit is necessary, they select a team of individuals who will conduct a detailed examination of all areas of concern.
The auditor’s team is known as an “audit engagement team” or the “audit committee”. They will be the persons who review and analyze all areas of the company’s records and report their findings to the audit manager, who is responsible for sending the audit report to management at a later date.
How does it benefit you
In short, an audit helps protect your investments. For example, if you have invested in a company that deals with money, such as insurance companies and banks, then an audit makes sure that your money is not being used improperly. An audit helps protect investors; however, in some cases, it may also help a company or organization obtain additional financing.
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