Let’s start with an outlay of the word ‘audit’.
It is namely derived from a Latin word ‘audire’, which means ‘to hear’. In earlier times, the medieval times to be exact, when manual book-keeping was prevalent, the kings used to hear the accountants narrate the accounts verbally. Auditors in Britain used to hear the accounts read out for them and checked that the organization’s personnel were not negligent or fraudulent.
What is an audit process? Moyer identified that the most important duty of the auditor was to detect fraud. Chatfield documented that early United States auditing was viewed mainly as verification of bookkeeping detail.
However, as the complexity of the accounting function grew, need was felt to thoroughly check the account for mistakes and the misclassification thereof and the findings were then documented in a written form so that it can be used by the management, stakeholders, investors, government and various other bodies. This process is known as auditing or audit.
Auditing is thus related to the tutorial tally of accounts and financial managerial records. It involves the independent examination of books, accounts, statutory records, documents and vouchers of an organization to ascertain how far the financial statements as well as non-financial disclosures present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly maintained by the concerned as required by law.
Furthermore, audits provide third party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other areas which are commonly audited include: secretarial and compliance audits, internal controls, quality managements, project managements, water management, and energy conservation.
Apart from auditing per annum or month, there is also a term in auditing called continuous auditing. This is an automatic method used to perform auditing activities, such as control and risk assessments, on a more frequent basis. Technology plays a key role in continuous audit activities by helping to automate the identification of exceptions or anomalies, analyze patterns within the digits of key numeric fields, review trends and test controls, among other activities.
The ‘continuous’ aspect of continuous auditing and reporting refers to the real-time or near real-time capability for financial information to be checked and shared. Not only does it indicate that the integrity of information can be evaluated at any given point of time, it also means that the information is able to be verified constantly for errors, fraud, and inefficiencies. It is the most detailed audit.
Each instance of continuous auditing has its own pulse. The time frame selected for evaluation depends largely on the frequency of updates within the accounting information systems. Analysis of the data may be performed continuously, hourly, daily, weekly, monthly, etc. depending on the nature of the underlying business cycle for a given assertion.
As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of risk management, risk control and the governance process over the subject matter. Auditing has become such a ubiquitous phenomenon in the corporate and the public sector that academics started identifying an audit society.
People are more and more involved in the audit process. Audits are used as opportunities to train others. For example volunteers who are not auditors are invited to walk through the audit process with the auditor as assistants. This will provide them with a better understanding of what audits are and why their inputs are necessary.
Also of utmost importance is to invite all the auditees to the closing meeting. It will help to hear audit findings firsthand, the positive as well as the negative.
Involving people creates a feeling that everyone is a vital contributor to the goal of the company – compliance. The auditor perceives and recognizes the proposition before them for examination, obtains evidence, evaluates the same and formulates an opinion on the basis of his judgement which is communicated through the audit report.
Seen in the above, any subject matter may be audited and auditing is a safeguard measure since ancient times.