What is an Audit

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Audit Tutorial- What is an audit? Why even bother?

Typical audit objectives (what you’re trying to achieve)

Safeguarding of Organizational Assets
Compliance with Regulation, Policy & Other Requirements
Accomplishment of Organizational Goals & Objectives
Reliability of Information (Reporting)
Economy & Efficiency of Operations

Types of audits (not all audits are created equal)

Financial

Major Focus—Accuracy of Financial Reporting
Key Measure—Materiality of Errors and Misstatements
Opinions—Based on Professional Standards and Judgment

Note:
Certified Public Accountants (CPAs) licensed to express opinions related to Financial Reporting
Primary Stakeholders—Decision-Makers (legislators)
Funding Sources (taxpayers).

Performance

Major Focus—Achievement of Goals & Objectives
Key Measure—Project Management
Primary Stakeholders—Decision-Makers (legislators)
Funding Sources (taxpayers)
Users (beneficiaries of public services)

Regulatory 

Major Focus—Statutory/Regulatory Adherence 
Key Measure—Compliance 
Primary Stakeholders—Decision-Makers (legislators) 
Regulators (other agencies)

Internal 

Major Focus—Organizational Needs 
Key Measure—Adequacy of Internal Controls 
Primary Stakeholders—Organizational (management & employees)

Fraud/Special 

Major Focus—Investigative in nature; focused on specific allegations 
of financial fraud, waste and abuse associated with specific 
individuals and/or specific transactions 
Key Measure—Fiduciary Duty 
Primary Stakeholders—Prosecuting Authority (DA, AG, Justice Dept) 
Decision-Makers (legislators

Fiduciary duty is characterized as being “the highest standard of care imposed at either equity or law,” requiring the fiduciary to be “extremely loyal to the person to whom they owe the duty (the principal),” and requiring those entrusted in this manner “not put their personal interests before the duty, and not profit from their position as a fiduciary, unless the principal consents.”

Source: Wikipedia Encyclopedia (http://en.wikipedia.org) Note: The principal, with respect to public resources, is ultimately the taxpayer/citizen.

How to read a typical financial audit report

Background

Normally provides perspective on organizational mission, key processes or initiatives, funding levels, how the audit came about, major concerns triggering the audit etc. 

Executive Summary

Normally provides a high level summary of significant audit findings, observations or conclusions. 

Scope of Work

Normally identifies the areas being evaluated, the time period under review, and may specify activities or transaction types looked at or not looked at. 

Methodology

Normally describes how the audit was conducted in terms of sampling methodologies or transactions selected for evaluation 

Findings

Describes significant shortcomings identified during the audit. A finding is typically organized in the following manner:

  • Condition
    The specific situation/shortcoming)
  • Criteria
    Policy, duty or good business practice being violated)
  • Effect
    Risk or adverse impact associated with this condition)
  • Cause
    The likely reason this condition exists)
  • Recommendation
    How the condition might be remedied/fixed)

Management Response

When included, normally constitutes a managerial perspective on corrective actions considered necessary to resolve the finding.

Note
Due to the nature of Fraud and Special Audits and the primary stakeholders associated with such audits, a Management Response will typically not be associated with the related audit report.