The Primary Objectives of an Audit

by Kevin Johnston; Updated September 26, 2017

Many people think that the purpose of an audit is to detect fraud. While fraud -- and errors -- may be discovered, that is not the primary purpose for auditing your business financial records. Whether the audit is internal -- generated by management -- or external -- initiated by a regulatory agency -- there is no need to create an atmosphere of dread. Once you understand the audit function, you may even welcome it.

Reliability of Financial Statements

The primary purpose of an audit is to ascertain the reliability of financial statements. This should be of the utmost importance to anyone running a business. The audit will determine if you can count on the figures in your statements, and knowing this can inform your decisions going forward.

Quality of Supporting Records

The primary purpose of auditing encompasses examining the supporting records for your financial statement. The audit can uncover inferences and assumptions that are not supported by the records. This can improve not only your financial statement, but your record keeping.

Answering Questions about Effectiveness

You should go into an audit with questions you want answered. An audit may show your where you are losing profits, or explain why your cost-of-sales figures are rising faster than your sales. Keep in mind one to three important questions as you examine audit findings, and you may discover that an audit is a powerful tool for your success.

Check on Regulatory Compliance

An audit can tell you if you are in compliance with such things as accounting methods, inventory reporting, debt reporting and a host of important issues regulators are interested in. Being out of compliance need not indicate fraud; it can simply tell you what areas you need to focus on in the near future to avoid regulatory problems.

Generally Accepted Accounting Standards and Audits

According to the Federal Accounting Standards Advisory Board, an audit conducted to determine if accounting is in compliance with Generally Accepted Accounting Principles, has a strict rule. No auditor who is a member of FASAB may declare that a company is in compliance with GAAP if they find procedures that are not in compliance. One of the objectives of an audit is to determine if a company is in compliance with GAAP in its record-keeping.

About the Author

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

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