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Related to Audit: Medical audit, External Audit, Quality audit, Internal audit
2. In taxation, the process in which the tax collection agency reviewing the reports of an individual or company to see if all income, deductions, and/or credits reported accurately reflect reality. This is done to ensure that each individual or company pays his/her/its full tax liability. Audits are conducted on a random basis, or when something appears remiss on a tax return. See also: Tax avoidance, Tax evasion.
An audit is a professional, independent examination of a company's financial statements and accounting documents following generally accepted accounting principles (GAAP).
An IRS audit, in contrast, is an examination of a taxpayer's return, usually to question the accuracy or acceptability of the information the return reports.
- the legal requirement for a JOINT-STOCK COMPANY to have its BALANCE SHEET and PROFIT-AND-LOSS ACCOUNT (the financial statements) and underlying accounting system and records examined by a qualified AUDITOR, so as to enable an opinion to be formed as to whether such financial statements show a TRUE AND FAIR VIEW of the company's state of affairs and that they comply with the relevant statutes. Auditing involves inspecting documentary evidence of transactions such as INVOICES, STATEMENTS and DELIVERY NOTES to ensure that the DOUBLE-ENTRY accounting entries are complete and authentic.
Where the auditor is satisfied that the financial statements show a ‘true and fair view’ he will report this to the SHAREHOLDERS in the ANNUAL REPORT AND ACCOUNTS. However, if he is not satisfied that the financial statements show a ‘true and fair view’ or he is unhappy about any explanations given by the managers, then he may make a ‘qualified report’ to the shareholders expressing his precise misgivings.
- internal audits of accounting procedures, marketing activities, production operations, quality control systems, and safety may be undertaken to monitor and review the efficiency and effectiveness with which these various activities are undertaken. In addition, a company may undertake a value-for-money audit, to evaluate whether the organization is operating effectively. See also MARKETING AUDIT.