Your questions

In this section, we have answered some of the most common questions we're asked about audit. If you can't find what you're looking for here, please send your question to us and we will post the answer below.

What is the value of audit?

Having independent and unbiased auditors confirm that an organisation’s claims about its financial position, and the process behind these claims, are true and fair is useful for a wide range of reasons.

Groups to whom audit is valuable include investors and shareholders, company finance directors and senior management, regulators and financial analysts. You can read more on this subject here.

What does the audit do?

An audit is the process of checking that the way an organisation presents information about its financial position (its ‘Financial Statement of Accounts’) is true and fair. Read more here

What does true and fair mean?

In essence, ‘true and fair’ means that, in the auditor’s opinion, the financial statements of a company being audited offer a true and fair view of its actual financial position. In other words, they are not deliberately or accidentally misleading and any assumptions they include are reasonable.

Is bank auditing different?

In essence there is no difference in the audit process when a bank it being audited. However, as with any individual sector, bank auditors need to be aware of specific regulations that will apply to banks. In addition, where the auditor comes across specific issues that may be of material significance, then the Financial Services Authority will be notified.

What is the process an auditor follows? What actually happens in a typical audit?

Exactly how an audit is carried out will depend on the nature of the organisation being audited. However, most auditors follow a broadly similar process, working closely with their clients’ senior management and guided by a set of ‘International Standards’ – essentially these are designed to ensure that audits are carried out in the same way the world over, whilst allowing auditors to follow rules and regulations set out by individual countries. Read more here.

Who sets the rules and standards?

International Standards on Auditing (ISA) are maintained by the International Federation of Accountants through the International Auditing and Assurance Standards Board.

In the UK, the audit profession is very closely monitored and tightly regulated according to stringent professional standards and legislation. Any breach of these rules can have severe consequences for the individual or firm involved.

How independent are auditors really?

All audit professionals must be ‘competent, independent and unbiased’. Without this independence, the value of an audit is lost.

The independence of auditors is closely monitored both by the firms they work for and by bodies which regulate the profession. Any auditor or firm of auditors found to be breaking the rules on independence would face severe penalties, including a fine, losing their Licence to Audit and a consequent loss of reputation.

Beyond the ‘true and fair’ statement in the annual report and accounts, what are the outputs from the audit and who do those go to?

The auditor will use the information gathered during the audit process to write a final report – which includes an independent opinion of the organisation’s financial position.

The auditor will also prepare a letter or report for the organisation’s management, setting out any important issues that came to light whilst the audit was being carried out.

How are such outputs discussed and recommendations acted upon?

The outputs of an audit will be discussed in detail with an organisation’s senior management. In the end, however, the decision on what action should be taken is down to the organisation itself and not the auditor. Whether action is required, and whether action is taken, will be reflected in the auditor’s formal ‘opinion’ of the organisation’s accounts.

How else do auditors help companies?

Auditors can help companies in a number of ways. For instance, most audits these days will look at ‘internal control systems’ as well as the finances. These systems are usually established through the specific design of computer systems and, for instance, ensure that the authorisation of transactions is controlled according to clear rules and policies.

In addition, many company accountants and finance directors also value working closely with auditors. They believe auditors can help to solve complex accounting problems, offer world class advice on issues ranging from governance to business processes and keep them up to date with the latest techniques, rules and regulations.

Does the audit profession need to be reformed in light of the banking crisis?

Questions have been asked about whether the current reporting model continues to properly meet the needs of the industry and those with an interest in the accounts could be expected from the auditors. The profession as well as governments and regulators have been looking at how audit can evolve to meet changing market expectations.

Details of current consultations and submissions can be found on this website.

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