An examination of the financial report of a company is called an audit. It is usually presented in the company’s annual report prepared by auditors. It usually relates to a specific past accounting period. Audit report based on selective testing of company’s performance is the obligatory requirement once the audit is completed. The report includes an income statement, a balance sheet, statement of changes in equity as well as cash flow statement and explanatory notes with a summary of significant accounting policies attached.

An audit reflects the financial position of the company at a given date, including information with regards to whether everything what is owned by a company and what it owes is correctly recorded in the balance sheet and are its losses and profits properly assessed. The financial report must be prepared according to certain legal requirements. When the report is prepared, it must be approved by company’s executives (e.g. Board of directors) by making a judgment towards its accuracy.

Audits may also include: asking formal and informal questions, examining tangible items owned by a company such as mechanical and electrical equipment, obtaining written confirmations, testing and monitoring certain procedures being performed in the company’s premises.

Auditing standards
The standards used for proper examining the financial report are set by a government. There are International Standards on Auditing (ISAs) available on the Internet, containing clear statements which should be addressed by auditors. They consist of introduction, objectives, definitions, requirements expressed by the phrase „the auditor shall”, application and other explanatory material.

There is also an e-Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements released in December, 2016 available on the Internet with translations in English, Arabic, Bulgarian, Danish, French, Georgian, French, Kazakh, Italian, Serbian, Russian, Spanish and Thai. It includes Consideration of Laws and Regulations in an audit of financial statements and amendments and other international standards, consisting of new requirements which address non-compliance with laws and regulations (NOCLAR) in the IESBA Code of Ethics for Professional Accountants.

Core principles of auditing
There are general principles and responsibilities when it comes to General Auditing Standards as well as functions of the independent auditor AS 1001. For example, consideration of materiality in planning and performing an audit, having a direct effect on the determination of financial statement amounts. AS 1005 stating independence in mental attitude is to be maintained by the auditor or auditors. AS 1010, specifying training and proficiency of the independent auditor and stating that an independent auditor represents a person who is proficient in accounting and auditing. AS 1015, explaining due professional care requirements in the performance of work. Other divisions of auditing standards include general concepts. They give a detailed description of audit risk, audit evidence and relationship of auditing standards to quality control standards. General activities describe supervision of the audit engagement, audit documentation, using the work of a specialist and engagement quality review. Auditor communications describe communications with audit committees and communications about control deficiencies in an audit of financial statements. Audit procedures include audit planning, reporting and risk assessment. Auditor reporting includes requirements of reports, financial statements and dating. Matters relating to filings under federal securities laws as well as other matters associated with audits include a view on responsibilities and reviews of financial information.

Audits help to understand and evaluate company’s activities, consider company’s economic issues which may affect its business, identify risks, having an impact on company’s financial state and performance and afterwards generate a business plan which will help the company to improve all the collected data.