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An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.

The purpose of an audit is to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position of the organisation at a given date, for example:

  • Are details of what is owned and what the organisation owes properly recorded in the balance sheet?
  • Are profits or losses properly assessed?

When examining the financial report, auditors must follow auditing standards which are set by a government body. Once auditors have completed their work, they write an audit report, explaining what they have done and giving an opinion drawn from their work. With some exceptions, all organisations subject to the Corporations Act must have an audit each year. Other organisations may require or request an audit depending on their structure and ownership or for a special purpose.

What do auditors do, specifically?

Auditors discuss the scope of the audit work with the organisation – the directors or management may request that additional procedures be performed. Auditors maintain independence from management and directors so that tests and judgments are made objectively. Auditors determine the type and extent of the audit procedures they will perform, depending on the risks and controls they have identified. The procedures may include:

  • Asking a range of questions - from formal written questions, to informal oral questions - of a range of individuals at the organisation
  • Examining financial and accounting records, other documents, and tangible items such as plant and equipment
  • Making judgments on significant estimates or assumptions that management made when they prepared the financial report
  • Obtaining written confirmations of certain matters, for eg, asking a debtor to confirm the amount of their debt with the organisation
  • Testing some of the organisation's internal controls
  • Watching certain processes or procedures being performed.




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