Audit Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Audit, written in plain English, along with examples of how it is used.

What is Audit?

(n) Audit is the examination of the records of a business entity, to form an opinion about the authenticity of such records, by verifying the correctness and reliability of the recorded transactions from the evidences available, opinion and inference reachable based on the circumstances and situation prevailing therein.

History and Meaning of Audit

An audit is a process used by accountants to verify the accuracy of a company's financial information. The purpose of an audit is to provide an objective examination of a company's financial records and to ensure that they are accurate and complete. Auditors typically review a company's financial statements, accounting records, and internal controls to determine whether their financial information is reliable.

The audit process has been used for centuries as a way to provide assurance that financial information is accurate and trustworthy. The origins of modern auditing can be traced back to the 19th century, when companies began to recognize the importance of having an independent third party review their financial records. Today, audits are required by law for many companies and are an important part of the regulatory framework that governs business.

Examples of Audit

  1. ABC Company hired an auditor to review its financial statements and ensure that they comply with accounting standards.

  2. The Internal Revenue Service (IRS) selected XYZ Corporation for an audit, to confirm whether their tax returns properly reported all income and deductions.

  3. A potential buyer of a small business requested an audit of the company's financial records as part of the due diligence process.

  4. The Securities and Exchange Commission (SEC) requires public companies to undergo an annual audit by a registered public accounting firm to ensure compliance with disclosure and reporting requirements.

Legal Terms Similar to Audit

  1. Investigation: A process of looking into an issue in order to gather information and evidence.

  2. Review: An examination of financial information to determine whether it is accurate and complete.

  3. Due diligence: The process of investigating a potential investment or purchase to make sure it is sound and appropriate.

  4. Compliance: The act of adhering to rules, regulations, and laws that relate to a particular business.

  5. Verification: The act of confirming the accuracy of information through examination and analysis.