What is An Audit? – Part One

When I tell folks that I am an auditor, I immediately get that defensive look as they assume that I am a dreaded IRS auditor (which I am not). When I further explain that I audit financial statements, I usually receive a weak smile and a slight head nod, as if to signal that they are glad I am not with the IRS, but they really don’t have an idea what I do and are a little too embarrassed to ask or don’t really care. For those of you employed at non-profit organizations or serve on their Board of Directors, I thought I would take a few moments and explain what an audit of financial statements really entails. In a later post I will address who may need to have an audit.

So what is an audit of financial statements? Usually on a monthly basis, the controller, CFO, or accountant at your organization prepares financial statements, usually consisting of a balance sheet and income statement. These statements are used by staff, management and the Board of Directors to make decisions about the organization. But all of the information is gathered by and reported by people INTERNAL to the organization. A financial statement audit involves someone EXTERNAL to the organization, an independent certified public accountant.

Audits of financial statements are done according to a set of standards that all CPA’s must adhere to, which are referred to as Generally Accepted Auditing Standards (GAAS). These standards have been developed by the American Institute of Certified Public Accountants and are monitored and revised based on financial circumstances, including failures related to fraud.

So how do we perform an audit? See my post, next month.