Introduction to the subject area Auditing
The word ‘audit’ is usually used to refer to the process of providing an
opinion on the accuracy or validity of some subject matter specifically,
from our point of view, financial information. In particular, a regulatory
‘external’ audit provides an opinion on the financial statements of an
organisation for users who are outside the organisation’s management.
The auditors’ opinion helps these users to decide how much to rely on the
financial statements when making decisions. External financial audit has a
long history and has become highly organised and regulated. It therefore
forms the main focus of this subject guide. However, audit is only one
form of assurance, and demand for other forms, not limited to financial
information, has greatly increased with accountants and others being
engaged to offer assurance on all sorts of information or processes. Some
aspects of financial audits are very much relevant to these other forms of
assurance.
If you are not sure what other forms assurance can take, just look around
your home. In my kitchen, for instance, I have some food which is certified
by the Soil Association, a UK-based charity dedicated to promoting
environmentally safe methods of food production. The Association certifies
that certain food stuffs are being organically grown and this reassures
consumers who may be worried about mass-farming methods which may
harm our health and the planet. Other food is marked as ‘Freedom Food’
by the Royal Society for the Prevention of Cruelty to Animals (a charity
which aims to promote good standards of animal welfare). The purpose of
the fair trade organisation is to promote responsible relationships between
large producers in developed countries and growers in less developed
countries by reviewing whether the prices which the farmers have been
paid are ‘sustainable’ rather than exploitative. As consumers, we are
reassured by the involvement of these credible intermediaries, without
whom we would only have the unsubstantiated claims of the producers.
These are examples of a type of ‘audit’ exercise which may even involve
accounting firms even though the material or processes being corroborated
have little to do with accounting matters. Accountants have established a
reputation for honesty and fairness which means that their clients and the
public can generally trust them to evaluate organisations in an objective
way. The fact that the matter under investigation is not accounting-related
means that these accounting firms need to employ other specialists.
Companies are also increasingly reporting on their environmental
and social impacts – this is sometimes referred to as corporate social
responsibility (CSR) reporting – alongside their financial statements. Some
companies choose to have their environmental or sustainability reports
audited and this is a service that is often provided by the big accounting
firms.
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