Audit And Control: Study And Meaning

Audit and Control: Study and Meaning

The term audit means verifying that the financial, administrative and operational information generated is truthful. That is, that the facts and operations of a company are given in the way in which they were raised, that the established procedures are respected to make the most of the resources and thus be able to meet goals. For their acceptance public and private companies have made this practice, a necessary tool, since it gives them the opportunity to know their current situation in real time, in order to react in a timely manner.

According to the above, this essay seeks to publicize concepts of audit, the evolution of the audit, audit classes, the audit risks, the importance of the application of the audit within a company, and theauditor’s role in an audit.

The origin of the audit, begins as a social need, from the development of the economy. Initially, the audit function was limited to mere vigilance, in order to avoid errors and frauds. With the growth of companies, the audit undertakes a broader objective: to determine the veracity of the financial statements, in terms of the patrimonial situation and the results of their operations.

The United Kingdom is attributed to the origin of the audit, understood in the current terms, although in ancient times control systems were practiced to verify the honesty of people and avoid fraud. It was in Great Britain, due to the industrial revolution and bankruptcies suffered by small savers, where the audit was developed to achieve the confidence of investors and third parties interested in economic information.

The audit soon extended to other countries, mainly of Anglo -Saxon influence.

At the beginning the audit was responsible for verifying the accounting records, dedicating only to observe if they were exact, so Arthur Holmes in 1984 defines it as: “It is the examination of the demonstrations and administrative records, where the auditor observes theaccuracy, integrity and authenticity of such demonstrations, records and documents ".

However, with the passing of time the field of action of the audit has been extending, so that in 2007 the ‘American Accounting Association "defines it as follows:" It is a systematic process to obtain and evaluate in a way in a wayobjective the evidence related to reports on economic activities and other related events. The end of the process is to determine the degree of correspondence of the informative content with the evidence that gave rise to it, as well as to determine whether these reports have been prepared by observing established principles for the case ”. That is, the audit aims to find out the precision, integrity and legitimacy of the financial statements of a company.

On the other hand, according to Harvard University, the following definition is established: “The audit is the examination of all accounting annotations in order to verify its accuracy, as well as the veracity of the states or situations that these annotations produce."

According to Victor Mendivil Escalante, he affirms that the audit is the activity by which the accounting correction of the figures of the financial statements is verified;It is the very review of the records and sources of accounting to determine the reasonableness of the figures shown by the financial statements emanating from them.

According to Alvin a. Arens Audit is the collection and evaluation of data on quantifiable information of an economic entity to determine and inform about the degree of correspondence between the information and the established criteria. The audit must be carried out by a competent and independent person.

For Gabriel Sánchez Curiel, the audit is the integral exam on the structure, transactions and the performance of an economic entity to contribute to the timely risk prevention, productivity in the use of resources and permanent compliance with the control mechanisms implantedby administration.

Audit, in its broader meaning, means verifying that the financial, administrative and operational information generated by an entity is reliable truthful and timely, in other words, it is to review that the facts, phenomena and operations are given in the way in which they were planned;that established policies and guidelines have been observed and respected;that tax, legal and regulatory obligations in general are met. 

The word audit is directly linked to the company, since an audit would not exist if the company was not legally constituted. In addition, the audit was consolidated as a need for control that attempted minimizing the risk in the activities of a company.

“Control is the verification of itself, everything occurs in a company according to the adopted program, under the orders and the admitted principles. Its purpose is to point out weaknesses and errors in order to rectify them and prevent them from producing again ”. (Henri Fayol)

Control requires the existence of an objective and the application of corrective measures. This has been the philosophy of control by objectives, widely developed by Peter Drucker, and commonly accepted today by companies. Control is considered in modern business philosophy as the permanent analysis of deviations between objectives and achievements, and the adoption of corrective measures that allow compliance with the objectives or their necessary adaptation. 

[Bookmark: _ref24063864] The above definitions demonstrate that the audit is a process that has established a series of measures, which make it an essential tool for companies, which allows them by collecting evidence, determining reliability and qualityof the execution of activities carried out by their organization, in internal and external audits of the companies.

Internal audit. – It is a control carried out by the employees of a company to ensure that the operations are carried out in accordance with the policy of the entity, thus proposing solutions to the problems detected. The internal audit can be considered as a part of the internal control and is made by people dependent on the company with a sufficient degree of independence to be objectives in their work;that once finished they will announce the results to the senior managers. Therefore, the main characteristic of internal audit is the dependence of the organization and destiny of information.

"The internal audit is the advisory body of the management that seeks how to provide the company with greater efficiency through the constant and progressive improvement of policies, systems, methods and procedures of the company". 

‘The internal audit must provide the Board of Directors with the nature and roles of all insurance suppliers, including internal and external auditors, and perform the functions of the second line of defense’ ’.

External audit. – It is a control carried out by external personnel to the company where they examine and evaluate its operations, to issue a truthful and technical opinion of the control system that is being developed in the company. That is, having no dependence with the company, the audit will be totally independent and free of any influence by the company’s managers, thus generating greater reliability to third parties on the results thrown.

In 1996 Leandro Cañibano said that: «The objective of an examination of the financial statements of a company, by an independent auditor, is the expression of an opinion on whether they reasonably reflect its patrimonial situation, the results of its operations andthe changes in the financial situation, according to the principles of accounting generally accepted and with current legislation »

According to the objective pursued, the audit can be financial, verification, operational and special. The Financial Audit, also known as accounting audit, it is a method by which a company is reflected in the states of its accounts. This audit may be carried out by an internal or external auditor to the company, but an auditor of the private sector, not from the public as it happens for example in the fiscal audit.

The verification audit will verify if all the steps required for a specific operation have been carried out, that is, as described in the drafting of the procedures and norms established by the company. For example, check if those who made the order were authorized or if the delivery deadlines have been studied in the choice of the supplier or if the production process is receiving the materials in time.

The operational audit is questioned whether the raw materials have been bought at the best price, or if the order has been made at the right time, or if the deadlines for delivering the raw material could be reduced to the production process to the production process. And finally, the special audit is the review that is carried out with a purpose other than that of dictating the financial statements of the end of exercise;In an audit of this type, it may be necessary to check the operations in detail or it may be sufficient to carry out selective tests of certain parts of accounting.

Therefore and in search of a correct practice of the audit, it is necessary that there be a person in charge of applying it, to which we know it as an auditor. The auditor for the exercise of their functions must be professional in the field and independent of the company that audits, since it must carry out their work with freedom and objectivity because this allows them to be impartial in the judgments it issues. In addition, you can be a member of an office or consulting firm that is dedicated to carrying out said service. An auditor must meet the following aspects:

The auditor must always see the scope of the review, taking into account the slightest details and aspects that integrate it. You must expand the scope of your reviews, and optimize your personal and professional characteristics and qualifications. The auditor must identify relevant areas and aspects that deserve their intervention by promoting a healthy interaction with the audited.

The auditor must concentrate on the review of several interrelated activities thus his speech will be more productive. It must make the audits collaborate, so that a team is formed;that is to do more with less. The auditor must have a profitable approach to the organization, and must have an approach related to its goals and objectives.

An auditor should avoid the materialization of the audit risk and with the purpose of achieving a better understanding of the concept we will see how the Association of Collegiate Certificates typifies or divides the audit risk into three components:

Inherent risk. – It is that attributable to the nature of the economic activity, size or complexity of the company. An inherent risk occurs when a financial statement inherent in a transaction, account, balance or revelation can be susceptible to a material error before considering any internal or external related control. Among the factors that lead to the existence of this type of risks is the nature of economic activities, as well as the nature of both transactions and products and/or services, the management and quality of human resources are also relevantwhat the entity has.

Control risk. – A control risk occurs when one or more errors may not be prevented, detected and corrected in a timely manner by the organization’s internal control system. Here the internal control systems that are implemented in the company and that in circumstances become insufficient or inappropriate for the timely application and detection of irregularities. This is why the need and relevance that an administration has in constant review, verification and adjustments the internal control processes.

Detection risk. – It is presented when the procedures carried out by the auditor with a view to reducing the risk of audit to acceptable levels, do not detect the declaration of material errors in audited information individually or when added with other wrong statements.

To conclude, it can be said that economic growth, the need for sustainability in the organizations’ market, the appearance of new technological and computer tendencies, globalization, competition, among other factors, after the passage of time, has created asvital, the need to become aware for the correct evaluation of their control systems, which allows them in a more efficient way to know their operation. That is why the internal and external audit, taking into account these factors and needs, have been expanding their field of application, trying to meet all those requirements, which due to their complexity deserve a management according to their specialty.

However, for the performance of the auditor’s work in this technique, it plays a very important role to generate understanding and awareness of the personnel that integrate the organization, since their execution depends on them, it is carried out according to the criteria,current requirements and regulations, applicable to its interior. It is important to highlight the commitment by the personnel of the organizations, which must be promoted from senior management to promote an adequate awareness of audited control so that the development of internal and external audits achieves the result that the administration is waiting forand that it can also be based on these results, make the decisions required to achieve the objectives set.

BIBLIOGRAPHY

•  Mendez H, 2008, Audit: concept, classes and evolution. Ed. MC Graw Hill.
• Santillano Gonzales and Juan Ramón, 2007, Administrative, Operational and Financial Integral Audit.
• Maldivil, audit elements, 4th EDASA Editorial Edition.
• Alvin Arens, Audit an integral approach, 6th edition, Cap. 1, p. 1.
• Gabriel Sánchez, Audit of Financial Statements, 2nd Pearson edition.
• Drucker, 2008, The Practice of Management, 2008.
• Cañibano, 1996, accounting audit course 4th edition, Madrid.
• Madariaga, 1986, the audit in practice, Editorial Deusto, p. 79.
• Fernández Peña, 1989, Audit Dictionary, Semia Editorial.