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Audit: Definition and Meaning
Definition
An audit is an independent examination of financial statements and related records designed to provide assurance about whether the statements are fairly presented under an applicable accounting framework.
Why It Matters
Audits may be required by lenders, investors, regulators, contracts, government agencies, nonprofit governance requirements, or other stakeholders. They involve planning, evaluating controls, testing selected transactions and balances, and assessing financial-statement presentation.
An audit does not guarantee that every error or fraud will be detected. The scope, procedures, and conclusion depend on professional standards, materiality, risk, and the circumstances of the engagement.
Example
A company’s lender requires audited annual financial statements before renewing a credit facility. An independent CPA firm performs the audit and issues a report.
Related Terms
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