What is a financial audit?
Financial audit consists of reviewing the financial statements of a person or institution to determine their accuracy. In the United States, the word "audit" is referred to as a tax audit performed by the Internal Revenue Service (IRS). Taxpayers often go to a large extent to avoid this type of audit, but financial audit in the business world is a common process during year -on -year operations.
businesses, churches and governments are some of the institutions undergoing financial audits. In a typical financial audit, the certified public accountant (CPA) checks and checks the institution's records on its accounting procedures. This is important, especially for publicly traded companies, as this determines the credibility of the financial situation of the company, as stated by its leaders.
The aim of the financial audit is to repair and eliminate what is called material inaccuracy. These are any pieces or missing information that they themselves are sufficiently large to matter, in the sense that they can significantly change externalperception of the financial situation of the institution. If there is less than a 5 % risk that material incorrectness remains in accounting records, the financial audit has fulfilled its task and the records are published to all parties to all parties.
Most large, publicly traded companies in the world are audited by one of four accounting companies known as "Big Four". Among other things, these companies carry out financial audits, among other common accounting tasks, such as preparing a tax return. There are many other accounting companies that also provide audit services.
When implementing a financial audit, it is one of the potential obstacles that the audit company faces, and the need to balance contradictory incentives. Specifically, Correctly and Scrupulyly have to audit your client's records while maintaining a comfortable business relationship with the client. If an audit company finds many inconsistencies and will make an audit process withThe client may be motivated to look for the audit services next time. In these situations, the accounting company may face an incentive in such situations so that it is less than strictly honest at the audit, which can lead to a more pleasant experience for a client, which will then bring a return company to the company. These problems should be taken into account within the already complex audit process.