The purpose of an audit is to add credibility to an organization’s financial statements and as a result, enhance investor confidence and provide a sound basis for decision-making. An audit is essential to the efficient operation of capital markets and of significant public interest.
For an audit to add credibility, it is critical that it is independent. This means that the auditor is committed to acting in the public interest and to maintaining an objective, independent and skeptical frame of mind when interacting with management and others within an organization in the course of the audit.
An audit provides an independent opinion on whether financial information in the form of financial statements prepared by an organization for use by stakeholders, including investors, gives a true and fair view of a company’s financial position and performance when evaluated against a generally accepted accounting framework such as International Financial Reporting Standards.
Financial statements are designed to describe the financial effect of an organization’s business transactions over a period of time, and include quantitative and qualitative data. They are often derived from complex information systems and involve significant estimates and assumptions.
An audit of financial statements requires an understanding of the process that an organization follows in preparing its financial statements, which includes the controls it has implemented to help ensure that the information it has captured is complete, relevant, accurate and based on valid transactions.
To properly assess this information requires a deep understanding of an organization’s business, the risks it faces and the environment in which it operates. The assessment requires significant professional judgement, an analysis of transactions and data, gathering and evaluating of audit evidence, as well as critically and skeptically assessing the appropriateness and reasonableness of significant estimates and assumptions made by management while taking into account their objectives and motivations.