Audit Details

An audit by an external accountant gives a business the opportunity to have its accounts inspected by a disinterested party. An auditor will check that the accounts are in order and may be able to identify problems that the business was unaware of. An auditor is a fresh set of eyes who will go over the accounts and prepare a report confirming the validity of the accounts and that they meet required accounting standards.

Some businesses may feel that an inspection by an independent accountant is intrusive. However, all stakeholders in the business, from shareholders to employees, will find an independent audit reassuring. An audit shows that the accounts are in order and that the business is reporting its financial position honestly and properly. An audit not only inspects the current status of accounts or operations but also suggests where a business can make improvements, thereby improving efficiency and competitiveness.

In the United States, federal security laws require a public business to undergo an independent, annual audit. Private businesses do not have to undergo an external audit, but a bank may require one before lending the business money.

Real World Example of an Audit

Deloitte Touche Tohmatsu Limited started in 1845 in London, where it still has its headquarters. Deloitte provides auditing and other financial and professional services worldwide. In 2020, Deloitte had an aggregate revenue of $47.6 billion.

On its website, the company published the "Deloitte Global Audit Value Pulse Survey 2020," which states:

"Deloitte polled respondents about both the insights they receive from their audits (which could be provided by any number of participants in the financial reporting ecosystem). When it comes to audits, 92% of respondents seek a more holistic view of the direction their organization is heading from their audits. When asked which business areas they would like their audit to include in the future, they were equally split among the following areas - corporate culture, sustainability practices, ethical standards and practices, social responsibility practices, corporate purpose, and cyber risk."

Both Deloitte and its clients see an audit as much more than just a financial check.

History of an Audit

The term 'audit' derives from the Latin verb 'audire,' which is echoed in such English words as 'audible' and 'auditorium.' 'Audire' translates as 'to hear.' We call an inspection of accounts or operations an audit because, in medieval England, inspectors would listen as the accounts were read to them. The main focus of early auditors was to uncover any fraudulent activity. Obviously, this is still one of the functions of an audit, but it is, nowadays, only one aspect of an audit.

Types of Audit

Although most people associate audits with finance, a business can audit other aspects of its operation. For example:

  • An operational audit: This looks at the efficiency of a company's operations.
  • An energy audit: This audit looks at how energy is used and whether the company can make savings through more efficient energy use.
  • A project audit: This looks at how a project is going and suggests improvements. It may also check that the project meets legal requirements.
  • A quality audit: This checks that the company's products or services are meeting quality standards.