audit

(noun)

an audit of financial statements is the verification of the financial statements of a legal entity intended to enhance the degree of confidence of intended users in the financial statements by providing reasonable assurance that the financial statements are presented fairly.

Related Terms

  • GAAP
  • corporate governance

Examples of audit in the following topics:

  • Valuing the Target and Setting the Price

    • Compatibility audit: This deals with the strategic components of the transaction and, in particular, the need to add shareholder value.
    • Reconciliation audit: This links/consolidates other audit areas together via a formal valuation in order to test whether shareholder value will be added.
  • Sarbanes–Oxley Act of 2002

    • The act is also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability and Responsibility Act" (in the House).
    • It also creates a central oversight board tasked with registering auditors, defining the specific processes for compliance audits, inspecting conduct and quality control, and enforcing compliance.
    • It also addresses new auditor approval requirements, audit partner rotation and auditor reporting requirements.
    • It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.
    • It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls.
  • Sarbanes–Oxley Act of 2002

    • It is also known as the Public Company Accounting Reform and Investor Protection Act (in the Senate) and Corporate and Auditing Accountability and Responsibility Act (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX.
    • Title I provides independent oversight of public accounting firms providing audit services (auditors).
    • It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements.
    • It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.
    • It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls.
  • Limitations of Financial Statements

    • High-profile cases in which management manipulated figures in financial statements to indicate inflated economic performance highlighted the need to review the effectiveness of accounting standards, auditing regulations, and corporate governance principles.
    • As a result, there has been renewed focus on the objectivity and independence of auditing firms.
    • An audit of the financial statements of a public company is usually required for investment, financing, and tax purposes, and these are usually performed by independent accountants or auditing firms and included in the annual report.
  • Answers to Chapter 13 Questions

    • Finally, the U.S. government cannot completely audit the Fed.
  • Discrepancies

    • Waiting to be audited is not a good tactic, as this will likely result in fees or penalties for inaccurate reporting.
  • The Federal Reserve System's Structure

    • Third, the government cannot completely audit the Fed.
  • Answers to Chapter 14 Questions

    • The Fed could audit the bank more, could impose fines on the bank, or stop lending to a bank.
  • Repurchasing Stock

    • In auditing financial statements, it is a common practice to check for this error to detect possible attempts to "cook the books. "
  • Defining Corporate Governance

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