An audit is an objective and unbiased examination of all the financial statements of an organization or business. It can be done internally or externally: by the government or an accounting firm.
The objective of an audit is to render an opinion of the fairness and truthfulness of the businesses’ financial statements. Audited financial statements are the tool with which businesses and corporations use to report to their shareholders, the bank, any creditors and the government. Legislation in Canada states that a limited company (LLC corporations) must provide annual financial statements for audit by auditors. Financial statements are the responsibility of the management. The auditors’ responsibility is to decipher and state the facts about the financial statements. The auditors audit in order to obtain assurance that financial statements are free of any mistruths or inaccuracies.
The audit is: evaluation of the company’s system of financial control, the inspection of financial documents, observation of the assets, and enquires within and outside the company. The auditors will gather financial evidence in order to determine whether the financial statements present a fair picture of the company’s financial position and its activity during the time period being audited.
An audit report is the written result of the audit. The report is important because it is what the accounting department and senior management reads. If written well, it can act as a tool to prompt management to take any corrective financial action.
An audit trail is a detailed record by which all accounting data can be traced to its original source. The Securities Commission and other securities entities will use an audit trail for the reconstruction of trades if there is any questionable accuracy of the financial statements or accounting practices.
Cooking the Books
Cooking the books is an industry term meaning fraudulent and dishonest accounting. Cooking the books is when corporations falsify financial statements. Cooking the books usually involves adjusting financial data to show non-existent earnings or paying non-existing staff.
Tips for a successful audit:
1. Preparation- keep books up to date by a professional
2. Get a tax attorney
3. Schedule the audit in the off season- in order to spend time with the auditors