Audit – Definition, what it is and concept

Category: Finance

In the economic field, auditing involves evaluating and measuring in depth the characteristics of an organization in order to show its weaknesses and strengths taking into account a number of factors, such as efficiency and profitability.

Audit means the action of analyzing in an exhaustive and detailed way different characteristics of a business or a particular institution. And beyond that, since the measurement conditions must be based on previously established criteria.

In the daily economy, the work of auditing has different methodologies taking into account the scope of study or action assumed. In all of them, strategies and processes undertaken by the entity are valued audit.

The action of auditing necessarily involves a specific methodology, based on the observation of the processes carried out by the entities analyzed, as well as their evolution over a period of time and the ratios that their activity carries out.

Finally, all audit work must be formally reflected through a audit report, whose purpose is varied (from offering useful information for the same company or legally binding validity before the Administration)

Main goals in the audit process

There are clear principles in the basic scheme of the audit work, summarized in:

  • Establish a continuous observation in time of an organization, based on the intensive collection of data and documentation of the same.
  • In-depth study of the characteristics of the entity, from its daily operation to Inventory of your assets or resources.
  • Evaluation of the processes undertaken and the use of necessary resources for them.
  • Measurement of all activity and comparison with standards of each field of action, as well as with the different regulations or legislations.
  • Detection of faults or possible anomalies.
  • Preparation of improvements to be implemented and possible strategies from company to start up.
  • Development of a audit report detailed, argued with empirical data and conclusions for the future in the short and long term.

Typologies of the action of auditing an organization

In that sense, there are audits of an environmental, computer, compliance or the most widespread type, such as financial, management or accounting.

Alternatively, there would also be a comprehensive audit as a compendium or joint application of the above in a company.

Taking into account the origin of the auditor’s work, it is possible to differentiate internal or external audits. These classes are distinguished according to whether it is the organization itself that carries out the evaluation or is staff outside its structure.