The word audit usually evokes a varying sense of fear, as the average person believes the purpose of the audit is to catch wrongdoing, i.e., fraud or stealing. In fact, the main purpose of an audit is not to detect fraud–its purpose is to provide users with an opinion on whether financial statements are prepared in accordance with proper guidelines. These financial guidelines are more formally known in the accounting world as a financial-statement framework. The audit report provides an enhanced degree of confidence for its intended users, as the audit firm must undergo extensive technical steps to obtain reasonable assurance that the financial statements free from major errors (material misstatement).
When a company undergoes an audit, both management and other personnel will be asked to be interviewed and to provide documents to substantiate the audit opinion. Examples of items that will be asked include by-laws, board minutes, the general ledger, journal entries, invoices, payroll reports, fixed asset details, and loan contracts. The auditor will also ask for signed confirmations to support bank accounts, investments, and significant accounts receivable.
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