What is audit?
The word audit is derived from a Latin word Audiere, meaning "to hear". In ancient times, auditors used to report on the accuracy of data based on the oral representations. This role has evolved over the centuries. Modern 21st century auditors typically report on both verbal and written data.
Purpose of audit
Depending upon the type of audit, the audit's primary purpose is to verify the underlying transactions and events to express an audit opinion.
Types of audit
An external audit is the independent examination of the entity's financial statements to express as audit opinion whether the financial statements give a true and fair view. Qualified auditors usually conduct it.
Auditors usually report to the shareholder in the annual general meeting (AGM)
Who needs an external audit in the UK?
- a public company (unless it's dormant)
- a subsidiary company (unless it qualifies for an exception)
- an insurance company
- involved in banking or issuing e-money
- a Markets in Financial Instruments Directive (MiFID) investment firm or an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
- a corporate body and its shares have been traded on a regulated market
Who qualifies for audit exemption?
A company usually qualifies for an audit exemption if it has met at least two of the following conditions:
- an annual turnover less than £10.2 million
- assets less than £5.1 million
- Average number of employees is 50 or less
Can my accountant conduct an audit?
Usually, all auditors are qualified accountants; however, all accountants are not auditors. To conduct an audit, auditors need extensive training and must possess an audit practising certificate.
It is an internal, independent, objective assurance and consulting activity designed to add value and improve an entity's operations. It assists an entity in accomplishing its objectives by bringing a systematic, disciplined approach to evaluating and improving internal risk management, control environment and governance processes.
The internal audit function usually reports to the audit committee.
What is the difference between internal and external audit?
|External audit||Internal audit|
|Purpose||To express an audit opinion on the financial statements||Analyse and improve internal controls and performance|
|Focus||True and fair representation of the financial statements||Enhance and protect an entity's value|
|Scope||Regulatory compliance requirements||Entity's operations|
|Audience||Investors, customers, public interests, or regulators||Board, executive management|
|Skills||Accounting, finance, tax, compliance||Interdisciplinary|
Other types of audit
- Operational audit
- Compliance audit
- Tax audit
- Forensic audit
- IT audit
- Agreed-upon procedures audit