Financial audit

Auditing promotes transparency and accuracy in the financial disclosures made by an organization, therefore would likely reduce such corporations concealment of unscrupulous dealings.

The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in knowing that the financial statements are presented fairly, in all material aspects.

Audits exist because they add value through easing the cost of information asymmetry and reducing information risk, not because they are required by law (note: audits are obligatory in many EU-member states and in many jurisdictions are obligatory for companies listed on public stock exchanges).

According to the latest survey, it found that 70–80% of financial auditors are male, with 2% being female and the rest being a mixture of both (Bader, 2018).

Ernst & Young also includes separate legal entities which manage three of its four areas: Americas, EMEIA (Europe, The Middle East, India and Africa), and Asia-Pacific.

[12] As a result, accounting firms, such as KPMG, PricewaterhouseCoopers and Deloitte who used to have very low technical inefficiency, have started to use AI tools.

[13] The earliest surviving mention of a public official charged with auditing government expenditure is a reference to the Auditor of the Exchequer in England in 1314.

As Chancellor of the Exchequer, William Ewart Gladstone initiated major reforms of public finance and Parliamentary accountability.

The Act also established the position of Comptroller and Auditor General (C&AG) and an Exchequer and Audit Department (E&AD) to provide supporting staff from within the civil service.

To fully gain the trust of the public, the auditor profession would need to grow and standardize itself and establish organizations, becoming equally accountable across the country and the world.

[18] Financial auditing, and various other English accounting practices, first came to the United States in the late nineteenth century.

[20] In the 1910s financial audits came under scrutiny for their unstandardized practices of accounting for various items, including tangible and intangible assets.

The former wanted to inform bankers on how important it was to obtain audited financial statements from borrowers, whilst the latter was to encourage uniform accounting.

This bulletin included information about recommended auditing procedures in addition to the format for the profit and loss statement and the balance sheet.

The latter created the Securities and Exchange Commission, which required all current and new registrants to have audited financial statements.

Additionally, in 1947 a committee from the Institute advocated for "generally accepted auditing standards", which were approved in the following year.

Some oversight organizations require auditors and audit firms to undergo a third-party quality review periodically to ensure the applicable GAAS is followed.

The following are the stages of a typical audit:[1] Notes: Notes: After the auditor has completed all procedures for each audit objective and for each financial statement account and related disclosures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented.

Numerous proposals are made to revise the current system to provide better economic incentives to auditors to perform the auditing function without having their commercial interests compromised by client relationships.

See, respectively, Incentive Systems to Promote Capital Market Gatekeeper Effectiveness[28] and Financial Statement Insurance.

[30] Over the past couple of years, technology is becoming a bigger emphasis for the audit profession, professional bodies, and regulators.

Artificial intelligence, blockchain, and data analytics are major changers in the accounting and auditing industries, altering auditors' roles.

[31] This refers to machines that do tasks that need some kind of 'intelligence,' which can include learning, sensing, thinking, creating, attaining goals, and generating and interpreting language.

Currently, Deloitte and PricewaterhouseCoopers (PWC) are both using machine learning tools within their companies to aid in financial auditing.

PWC uses Halo, which is another machine learning technology that analyzes journal entries in the accounting books to identify areas of concern.

The blockchain approach's success is based on the employment of a complicated system of agreement and verification to ensure that, despite the lack of a central owner and time gaps between all users, a single, agreed-upon version of the truth is propagated to all users as part of a permanent record.

Blockchain is also able to verify the authenticity of transactions in real time, giving it the ability to alert necessary parties for fraud.

Before, auditors had to manually go through thousands of entries in a sample and now with blockchain technology, every single transaction is verified as soon as it is entered.

[33] Cyber security protects networks, systems, devices, and data from attack, unauthorized access, and harm.