Audit is a systematic and official examination and check of business activities. The activities may be those of a public or private organization. Such organizations rely on audits to provide independent and expert business advice. A person who conducts an audit is called an auditor. There are three basic types of audits–financial, compliance, and operational.
A financial audit checks the reliability of financial information. One important kind of financial audit is a financial statement audit. In this type of audit, an auditor inspects accounting records to decide whether the financial reports reflect generally accepted accounting principles. In the United States, the Financial Accounting Standards Board establishes these accounting principles, and certified public accountants (CPA’s) conduct the audits. In a financial audit, the procedures used by a CPA are based on auditing standards that have been established by the American Institute of Certified Public Accountants. All corporations that have publicly traded securities in the United States are required to have a financial audit.
A compliance audit determines if an organization has followed internal policies, laws, regulations, and contracts. Operational audits deal with some aspect of an organization’s operations. These audits are concerned with the efficient use of economic resources and the achievement of stated goals. Operational audits are intended to help an organization become more productive and more profitable.
The word audit comes from the Latin word auditus, meaning a hearing. Auditing began in ancient times. However, modern auditing techniques originated in Britain during the mid-1800’s. At that time, the main purpose of an audit was to detect fraud.
