An audit is a professional review of a company’s financial statements to determine whether they are accurate and complete. It can also help spot fraud.
The audit team must be knowledgeable about the business and how the company operates. It must have an understanding of the accounting and reporting methodology used to prepare the financial statements.
It must also have a thorough knowledge of the financial statements themselves. This is important because it will ensure that the resulting audit is objective and independent of management.
A company’s financial statements are a representation of its business activities. They include a statement of financial position and a statement of profit or loss.
They are often presented in the form of income statements, balance sheets, and cash flow statements. These statements provide investors with information on the current financial health of a company and may be required by the Securities and Exchange Commission or other regulatory bodies.
These statements should be free from material misstatements, including errors or omissions that may affect the company’s ability to continue to operate.
There are 3 basic types of audit risk: inherent, detection, and control.
Inherent risk refers to errors that arise from factors outside of the control of the company, such as erroneous accounting or a failure to implement internal controls.
Detection risk is the risk that the auditor’s audit evidence fails to identify misstatements that could cause materially different financial results.
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