The function of an audit is to examine the accounts and activities of a business and establish and verify the accuracy of its records. The auditor provides an independent assessment for the business. A financial audit will articulate an opinion on the financial status of the organization, and determine whether the business complies with generally accepted accounting principles. A performance audit, on the other hand, uses information to evaluate the effectiveness and the economy of an organization. If the organization fails the audit either partially or wholly, the auditor will commonly prepare a nonconformity opinion report. A nonconformity opinion by an auditor can jeopardize the certification of an organization.
The nonconformity opinion states what requirements the organization has failed to meet during the auditing process. This type of opinion usually indicates some discrepancy found in the systems or records of the organization related to GAAP. The auditor will provide evidence of the nonconformity findings in the form of records, documents, statements and observations. If during the auditing process the auditor discovers any aspect of the system that is nonconforming, he must pass the relevant information to the right personnel within the organization.
After the auditor writes a nonconformity opinion, the organization should attempt to rectify the situation. A firm should attempt to reach a consensus with the auditor regarding the nonconformity. Depending on the severity of the write-up, the organization can often rectify the problem at minimal cost, without significant complications. Additionally, if the organization feels the auditor made a mistake during the auditing process, it should file an appeal with the auditor and ask for a review of the process and records that led to the nonconformity opinion.
The job of an auditor is to find any discrepancies within the organization. Most auditors have extensive experience in different types of industries, having either worked in them or gained the experience auditing them. Auditors also have to abide by GAAP rules regarding the reporting of nonconformities. Additionally, auditors must answer to the registrar they work for about the observations made in any nonconformity opinion.
During a performance audit, the auditor focuses on efficiency. On the other hand, a financial audit focuses on accuracy. Both types of audits aim to improve the performance of the business and preserve the organization’s accreditation or certification. Losing a certification or accreditation can result in fines, work stoppage and financial loss for an organization. The organization should, therefore, always take auditors seriously, and address any nonconformity opinions before they cause damage to the overall operations of the company.
- McGraw Hill Connect: Auditor's Report
- "Principles of Auditing"; Rick Hayes and et al; 2004
- University of Memphis: ACCT 4240 - Auditing
- A world of Quality: Nonconformity Statements Add Value; John R. Broomfield; April 2007
Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.