Meaning of Audit

Auditing is a term that can refer to three different but interconnected things: it can refer to the work that an auditor performs, the task of studying the economics of a company, or the office where these tasks are performed (where the auditor works). The auditing activity consists of conducting an examination of the processes and economic activity of an organization to confirm whether they conform to what is established by law or good criteria.

Generally, the term refers to the accounting audit, which consists of examining the accounts of an entity.

For example: “This afternoon we will have an audit ordered by the municipality”, “The audit showed that the losses are caused by failures in the production process”, “The manager estimates that the audit will be completed in about two weeks”.

It can be said that the audit is a type of examination or evaluation that is carried out following a certain methodology. Typically, the auditor does not belong to the audited entity. There are large firms dedicated to accounting audits, such as PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young.

The person in charge of carrying out this evaluation is called the auditor. His job involves carefully analyzing the company’s actions and the documents where they have been registered and determining whether the measures that have been taken in the different cases are adequate and have benefited the company.

An audit is one of the ways in which the scientific principles of accounting can be applied, where the verification of the patrimonial assets and the work and benefits achieved by the company are essential, but they are not the only important thing. The audit also tries to provide guidelines that help the members of a company to properly develop their activities, evaluating them, recommending certain things and carefully reviewing the work that each one performs within the organization.

In a company, the evaluation regarding the organizational performance of the entire entity is essential to be able to discern if the desired objectives have been achieved. This work is the one corresponding to audits.

According to DigoPaul, an external audit consists of a detailed examination of the information system of a financial institution; It is carried out by a Public Accountant who is not related to the company. Its primary objective is to ascertain the integrity and authenticity of the actions and files found within the organization’s information system.

An internal audit, on the other hand, is a detailed analysis of the company’s information system, for which a series of specific techniques and methods are used. The reports are made by a professional who has employment ties with the company and they circulate internally without having legal validity outside the company.

When company balance sheets are very negative, auditors often recommend companies use certain strategies to refloat financially. For example, they recommend that a new product that was not yet expected to be launched be announced, in order to capture the attention of investors and the general public and recover the lost money. The audits are used primarily for companies to analyze their stocks and receive guidance to stay active and improve their position in the market.

Among other types of audits beyond accounting, we can mention the energy audit (which inspects the use of energy by a system or a construction), the environmental audit (focused on how an entity affects the environment), the social audit (which controls the activity of a firm in terms of its social responsibility) and the computer audit (a procedure that studies whether a computer system manages to preserve the integrity of its data and the efficient use of resources).

Finally, it should be noted that, in Argentina, the National Auditor General’s Office is the body in charge of providing technical support to Congress to control the status of the different public accounts.