Audit, Inspection Of Financial Records,

Audit,
 inspection and verification of the accuracy of financial records and statements.

Private businesses and all levels of government conduct internal audits of accounting records and procedures. Internal audits are conducted by a company’s own personnel to uncover bookkeeping errors and also to check the honesty of employees. In large companies, internal auditing is an ongoing procedure.

A company that trades stock on a registered stock exchange or is preparing to issue new shares of stock must submit to an external audit. These companies are known as publicly traded companies. An external audit is used to give the public a true statement of a company’s financial position. It is made at least once a year by public accountants who are not regular employees of the company. The auditors make sure that the company has followed proper accounting procedures in its financial records and statements. They compare the current financial statements with those of the previous year to determine whether the statements are calculated consistently. If they are not, they present a distorted picture of the company’s financial position. The auditors also inspect real estate, buildings, and other assets to see if their value is overstated. Debts and other liabilities are checked to see if they have been understated.

When the auditors are satisfied that the company’s accounts are in order, they issue a statement certifying that they believe the company’s balance sheet, income statement, and records fairly reflect the company’s financial condition. The audit statement is then made public in the company’s annual report.

Accounting firms that perform external audits came under close scrutiny by the United States government in 2001 in the wake of major scandals involving accounting and bookkeeping fraud at several major corporations. To remedy the problems, the U.S. Congress in 2002 passed a law that brought accounting firms under the strict supervision of the Securities and Exchange Commission (SEC) and its newly formed Public Company Accounting Oversight Board. Among other measures, chief executive officers (CEOs) and chief financial officers (CFOs) of publicly traded companies were required to sign statements affirming the accuracy of their firm’s financial reports or face prison terms for knowingly and willfully falsifying those reports.