HomeProductsAccountingWhat is Audit? | Definitions, Types, Steps, and Standards

What is Audit? | Definitions, Types, Steps, and Standards

Money management is a critical aspect of every business. However, we cannot prevent the numerous mistakes that may occur throughout the procedure. To prevent errors in the management of existing data and information, a firm or business manager will conduct an audit. Generally, stakeholders will have less confidence in financial accounts that have not been audited.

Generally, auditing is involved with an organization’s finances. That is not to say, however, that the auditing process is limited to the financial system. Audits are also conducted outside of the financial department. For example, strategic audits, operational audits, and information technology audit. Almost every business conducts yearly audits of its financial accounts. Typically, their lenders demand these reports as a condition of their loan arrangements. In other words, an auditor is also a legal necessity for certain types of businesses. Consider the description below to get a better understanding of auditing, its definition, kinds, phases, and standards.

What is Auditing?

Understanding Auditing in General

Audit is collecting and examining evidence related to the information to determine and make a report on the level of conformity between the data and the criteria. For instance, the objective of the audit is to find out the accuracy of the financial statements presented by the company. 

In general, this activity is carried out on financial statements, various bookkeeping records, and supporting evidence made by the management of a company. The auditor usually carries out the auditing process. An auditor is a person who checks the books of accounts of various departments to ensure that they are following a proper procedure for recording transactions. 

Read more: Easy Audit Procedures for Manufacturing Companies

Understanding Audit According to The Experts

following are the opinions of several experts in reviewing the definition of audit in more depth:

Mulyadi (2002) 

The audit is a systematic process to obtain and evaluate evidence objectively regarding statements about economic activities. The goal is to determine the level of conformity between the report and the criteria and convey the results to the user concerned.

Arens and Loebbecke (2003)

The audit is the process of collecting and evaluating evidence regarding measurable information on an economic entity. Its purpose is to determine and report the level of conformity between the data and the established criteria. 

William F. Meisser (2003)

An audit is a systematic process to evaluate evidence regarding economic actions and events. This activity also aims to ensure the level of conformity between the assignment and the criteria that have already set. The results of the work will communicated to interested users.

Sukrisno Agoes (2004) 

An audit is an examination of financial statements that have already prepared by management, along with accounting records and supporting evidence. This examination is carried out critically and systematically by an independent party. The purpose of this auditing is to provide an opinion regarding the fairness of the financial statements.

Types of Audits Based on the Examinations

In its application in the business world, audits are divided into several types. The following are types of audits based on their examination:

Internal audit 

An internal audit is a process that a company uses to improve its operations and add value to the organization. It usually involves carrying out assessments related to various aspects of the business. The scope of the examination is then decided by the board of directors and the audit committee. Usually, the auditors are employees or people who already exist and work in the business or company. Because ideally, these auditors are objective and free from the influence of others in the company, but they ultimately report to their superiors. 

External audit 

This is a process of reassessment conducted by an independent individual or organization not affiliated with the business or company’s management. External audits may assist in removing any prejudice from the examination of a company’s financial statements. Generally, this external auditor’s report includes a conclusion on the financial statements’ fairness. Additionally, there is a management letter that contains information about future changes that the business may make.

Stages of Audit Implementation

To achieve the auditing objectives following the company’s planning, some stages need to be carried out:

1. Acceptance of audit materials

Before the audit is carried out, there is usually a mutually agreed agreement. So that at this stage, there will become an explanation of the role of the auditor and the terms of the contract for the client to sign. After that, the client will submit his financial statements to the auditor to carry out auditing financial statements according to their duties. The preparation involves training personnel as well as ensuring the completeness of records and documents.

2. Preparation and planning 

The preparation process is the next stage that the auditor must know. Generally, this process can take only one day or even a week, depending on the nature of the audit. There are several things that the auditor needs to understand before carrying out this process, namely:

  • Understanding the client’s business industry 
  • Performing analytical procedures 
  • Determining materiality and determining auditing risk and inherent risk
  • Understanding the internal control structure and determining control risk 
  • Developing an audit plan and audit program

3. Execution 

The next thing after does the planning, namely the execution of the implementation. The auditor usually does this by collecting and analyzing data and information. Primarily to assess the need for internal control of the organization. In this process, auditors conduct interviews, examine documents, and other matters to develop audit findings. 

4. Reporting 

Reporting is the stage of the results of the audit work that has already completed. This report is a form of auditor communication with other parties, so it should not made arbitrarily. In this report, there are things that the auditor must include. Such as the type of opinion, the services provided, the scope of the audit, and the purpose of the audit. This report also contains the auditor’s opinion and recommendations on how to correct the errors encountered.

5. Correction

The final stage in this process is the corrective stage. Reports that have completed certainly require corrective and preventive actions. This action includes correcting the failure or deficiency of the audit findings. In addition, at this stage, we also take some preventative measures. That is to prevent the occurrence of factors that can lead to the failure of a company in the future. 

Audit Standards According to GAAS

In its implementation, several standards or references need to consider in auditing financial. 

1. General standards

  • The audit should carried out by one or more people who have enough expertise and technical training as an auditor.
  • In all matters relating to the assignment, independence in mental attitude must maintained by the auditor.
  • In carrying out the audit and preparing the report, the auditor must use his professional skills carefully and thoroughly.

2. Field standards

  • The auditor must organize his or their job carefully and oversee any helpers.
  • The auditor must get a comprehensive knowledge of the business and its environment, including internal controls. In order to evaluate the risk of material misstatement of financial statements, whether due to error or fraud, and to determine the kind, timing, and scope of further audit procedures.
  • Sufficient competent audit evidence to obtain through inspection, observation, questioning, and confirmation as a reasonable basis for an opinion regarding the audited financial statements.

Example of Audit Report

Following are some examples of audit reports: 

1. Internal audit report 

Internal Audit report
Source: pinterest.com

2. External audit report

Source: sampletemplates.com


As a result of this discussion, you now understand why the audit is critical to the operation of a business. To get a suitable working audit result, a business must take into account the process of documenting and presenting financial statements. Additionally, it is critical to highlight that audit firms should have no financial connections to their customers. Manual recording, on the other hand, will take a long time and is prone to human mistakes. This may resolved by using HashMicro’s Accounting System. Our technology enables you to quickly and simply generate financial reports and record transactions. Additionally, the system is Peppol network-ready, allowing for seamless invoicing management.

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Vania Marsha Kristiani
A Junior Content Writer at HashMicro who Interested in Digital and Growth. Also a life-time learner who always strive to learn and grow. For business inquiries: [email protected]


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