Audit Definitions and Types

What’s an Audit?

Before you can ask what an audit is, you must first consider who you are asking, as the definition and, sometimes emotional response, will be dependent on the position of the respondent. The term “audit” will normally have a very specific meaning based on a person’s life experience or context in which the word is being used. A university professor would describe an audit as attending lectures without formal enrollment and not receiving credit for the class. A plant manager may instantly think of a safety audit. A CPA will either think about an IRS audit if she is a tax preparer or a financial statement audit if she is an accountant. Accordingly, who you ask will likely determine how an audit is described and the emotional pendulum will tilt based on if the person is the auditor or auditee.

Audit Definition

An audit is both a noun and verb and the Oxford Dictionariy defines an audit as:

1. An official inspection of an organization’s accounts, typically by an independent body: audits can’t be expected to detect every fraud

inspection, examination, survey, scrutiny, probe, vetting, investigation, check, assessment, appraisal, evaluation, review, analysis, study, perusal, dissection

informal: going-over, once-over, look-see

verb (audits, auditing, audited):
1. Conduct an official financial inspection of (a company or its accounts)

inspect, examine, survey, look over, go over, go through, scrutinize, probe, vet, investigate, look into, enquire into, check, check into, assess, appraise, evaluate, review, analyze, study, pore over, peruse, sift, dissect, go over with a fine-tooth comb, delve into, dig into

What’s the difference between an internal auditor, external auditor, and independent auditor?

Internal auditors are normally employed by the organization they are auditing, although some organization may subcontract out the service. As there can be unlimited types of internal auditors, internal audits are generally intended to add value and improve the organization. External auditors are from outside the organization and may also be called the independent auditors. Again, while there are different types of auditors, external auditors typically refer to a financial statement audit conducted by a CPA firm. The word “external” normally starts being used when an organization has its own internal audit department and the need to clarify which group of auditors comes into play. Texas Counties have a position and office called the County Auditor. Within the County operations, the “auditor” is going to mean the County Auditor, so when the outside CPA firm comes in, they have to go out of the way to refer to themselves as the external auditor to avoid confusion.

What is an independent audit?

An independent audit is an audit conducted by someone who doesn’t have an interest in the outcome and, accordingly, is unbiased. The word “independent” will often be combined with the title to add credibility to the report. For financial statement audits, which can only be performed by a licensed CPA, the word “independence” has very specific meaning as set by the American Institute of Public Accountancy (AICPA). The AICPA defines independence as:

1. Independence of mind—The state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.

2. Independence in appearance—The avoidance of circumstances that would cause a reasonable and informed third party, having knowledge of all relevant information, including safeguards being applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or a member of the attest engagement team had been compromised.

AICPA requires auditors, when performing auditing and similar attest services, to independence, both in fact and in appearance, from entities examined.

What is a compliance audit ?

A compliance audit is a comprehensive review of an organization’s adherence to rules, regulations or agreements. There is a wide variety of compliance audits, from IT consultants testing security controls to manufacturing quality control for conformance with ISO9001 standards. Certified public accountants look to the AICPA’s definition:

Compliance audit—A program-specific audit or an organization-wide audit of an entity’s compliance with applicable compliance requirements, whereas, the compliance requirements may be laws, regulations, rules, and provisions of contracts or grant agreements applicable to government programs.

Are there other types of audits?

While to a CPA, the word “audit” has a very specific meaning, outside the profession there are as many different type of audits as you can imagine including government or regulatory audits, telecommunications audits, IRS audits, and IT audits, just to name a few.

What does it feel like to be audited?

Some of the synonyms like “dissect”, “examine”, and “probe”, make an audit sound more like a bad alien abduction than something that can occur in the workplace. These words are the first to hint that an audit is likely going to be an unpleasant experience. As an auditor, the first indication of my auditees’ honesty was when they greeted me with “we’re glad you are here!”. An auditee’s reaction to an audit came about at a young age. You can blame your mom for the way feel about being audited. She conducted your first audit when she looked under your bed to see if you really picked up your room. Most people would prefer to avoid that horrific feeling of being busted even though you may be the type of person who dusts the top of your refrigerator. Report card day brought anxiety for students from the first grade on. Even the highest overachievers had irrational fears of falling from grace. Fast forward 5, 10, or 20 years into a person’s career where their very livelihood is on the line, and it’s understandable why a person’s pulse rate might rise at the thought of someone “scrutinizing” their work.