An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.
Auditing services assist companies with constructing compliant financial statements and communication with banks, investors/shareholders, and other financial partners that their finances are in order. Auditing services are most commonly implemented in a company's finance and accounting departments.
When examining the financial report, auditors must follow auditing standards which are set by a government body. Once auditors have completed their work, they write an audit report, explaining what they have done and giving an opinion drawn from their work. With some exceptions, all organisations subject to the Corporations Act must have an audit each year. Other organisations may require or request an audit depending on their structure and ownership or for a special purpose.
An audit is important as it provides credibility to a set of financial statements and gives the shareholders confidence that the accounts are true and fair. It can also help to improve a company's internal controls and systems.