Answer Posted / lxmi1972
Audits are performed to ascertain the validity and
reliability of information; also to provide an assessment
of a system's internal control. The goal of an audit is to
express an opinion on the person / organization / system
(etc) in question, under evaluation based on work done on a
test basis.
Due to practical constraints, an audit seeks to provide
only reasonable assurance that the statements are free from
material error. Hence, statistical sampling is often
adopted in audits. In the case of financial audits, a set
of financial statements are said to be true and fair when
they are free of material misstatements - a concept
influenced by both quantitative (numerical) and qualitative
factors.
Auditing is a vital part of accounting. Traditionally,
audits were mainly associated with gaining information
about financial systems and the financial records of a
company or a business (see financial audit). However,
recent auditing has begun to include non-financial subject
areas, such as safety, security, information systems
performance, and environmental concerns. With nonprofit
organizations and government agencies, there has been an
increasing need for performance audits, examining their
success in satisfying mission objectives. As a result,
there are now audit professionals who specialize in
security audits, information systems audits, and
environmental audits.
In financial accounting, an audit is an independent
assessment of the fairness by which a company's financial
statements are presented by its management. It is performed
by competent, independent and objective person(s) known as
auditors or accountants, who then issue an auditor's report
based on the results of the audit.
In cost accounting, it is a process for verifying the cost
of manufacturing or producing of any article, on the basis
of accounts measuring the use of material, labour or other
items of cost. In simple words the term, cost audit, means
a systematic and accurate verification of the cost accounts
and records, and checking for adherence to the cost
accounting objectives. According to the Institute of Cost
and Management Accountants of Pakistan, a cost audit is "an
examination of cost accounting records and verification of
facts to ascertain that the cost of the product has been
arrived at, in accordance with principles of cost
accounting."[1]
An audit must adhere to generally accepted standards
established by governing bodies. These standards assure
third parties or external users that they can rely upon the
auditor's opinion on the fairness of financial statements,
or other subjects on which the auditor expresses an opinion.
The Definition for Auditing and Assurance Standard (AAS) 1
by ICAI - "Auditing is the independent examination of
financial information of any entity, whether profit
oriented or not, and irrespective of its size or legal
form, when such an examination is conducted with a view to
expressing an opinion thereon."
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