A physical inventory check is followed by an auditor’s review or inspection of various books of accounts to ensure that all departments are using the same documented procedure of documenting transactions. It’s done to make sure the organization’s financial accounts are accurate. Internal auditing can be done by staff members or the department head, while external auditing can be done by an outside company or an independent auditor. To guarantee that the books of accounts are completed fairly and there is no misrepresentation or fraud occurring, it is important for an impartial authority to review and verify the accounts.
Before they release their results for any quarter, all publicly traded companies are required to have an independent auditor audit their financial statements. Management internally prepares financial statements applying pertinent accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) (GAAP). Through different documented transactions, financial statements depict a company’s funding, investing, and operating operations. The financial statements were created domestically, therefore there is a significant possibility that they were prepared fraudulently.
Preparers can readily mislead their financial situation to make the organization look more prosperous or successful than they actually are in the absence of appropriate rules and standards. For businesses to correctly and fairly portray their financial status in compliance with accounting rules, auditing is essential. A company’s or organization’s workers conduct internal audits. The corporation does not share these audits with the public. They are instead ready for management and other internal stakeholders to use.
External audits, carried out by independent organizations and other parties, offer a frank assessment that internal auditors might not be able to offer. To find any significant inaccuracies or flaws in a company’s financial statements, external financial audits are used. Government audits are carried out to guarantee that financial statements have been made correctly and have not understated a company’s taxable income.
