What is an audit?

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.  In essence, ‘true and fair’ means that, in the auditor’s opinion, the company’s financial statements offer a true and fair view of its actual financial position, and that any assumptions they include are reasonable.

That is not to say that an audit is designed to spot deliberate dishonesty, though it has been known. Carrying out an audit is a complex and involved process which is most likely to reveal oversights, accounting errors and over-optimistic predictions. Few unearth serious issues such as fraud.

A good way to visualise what an audit is all about is to imagine it as a far longer, more complex, more challenging and more sceptical version of a cross-examination of ‘the numbers’ on Dragon’s Den.  An audit is also about gathering the evidence required to work out whether an organisation’s claims about profit, for instance, are true and fair. 

Once the audit process is complete, an organisation can publish a set of ‘audited accounts’ – essentially a detailed description of its financial position which has been verified by its auditors.

The auditor will write an Auditor’s Report, which essentially sets out an opinion on the truth and fairness of the audited organisation’s financial statement of accounts, based on the evidence gathered during the audit process. 

Finally, it is important to note that an audit is carried out on the assumption that the organisation being audited will be in a position to carry on trading for the following 12 months.  If the auditor finds good reasons to doubt the organisation’s ability to carry on, then this must be reflected in the Auditor’s Report, for instance by stating ‘there is a material uncertainty over the organisation’s ability to continue as a going concern’.