What is an audit? An audit is an official inspection of an organisation’s accounts, which aims to provide an independent opinion on the ‘truth and fairness’ of a set of financial statements.
This is important because often those that own the company, the shareholders, are separate from the managers of the company. An audit provides independent assurance to the shareholders (and others) that the financial statements produced by the managers fairly represent the company’s performance.
An audit provides comfort to the stakeholders of a company that the financial statements are true, fair and an accurate reflection of the state of the company.
External audits must be performed by a professional who has qualified with, and is a member of a recognised professional body. In order to reach an audit opinion the auditors will carry out procedures to obtain audit evidence to provide them with reasonable assurance that the financial statements are free of material misstatement.
The auditor will also ensure that the financial statements have been prepared in accordance with the relevant legislation & accounting standards.
An unqualified, or clean, audit opinion means that the auditor has not identified any material misstatement as a result of the review of the financial statements.