What Is the Function of an Accounting Audit?

An accounting audit performs a necessary function of assuring that a company not only is being truthful in its financial reporting but also that the company's operations are working as intended. Auditors may work either inside the company, conducting an internal audit, or for another organization, conducting an external audit.

External and Internal Auditors

External auditors are certified public accountants, or CPAs, who work as independents of a business or organization, examining the financial statements prepared by the management of the business or organization. The federal Securities and Exchange Commission, or SEC, requires companies that are publicly held to have their financial statements examined by an auditor. The auditor ensures that all statements made in the company's financial statements are accurate and truthful. Internal auditors perform similar tasks of assuring the company's financial statements are truthful and accurate, but they are employed by the company being audited.

Company Systems

An accounting audit does not only examine whether a company's financial statements are accurate, but it also tests that the company's systems are operating as they should. The systems an auditor examines include the company's internal controls, or the measures taken to reduce or eliminate accounting errors or fraud. Based on the results of an accounting audit, the auditors recommend changes the company should make to its processes or systems to eliminate problems and reduce future errors. The audit report also points out potential holes in the company's internal controls that would allow an employee to commit fraud and potentially not get caught.

Financial Goals

Companies should always be striving to keep operating costs as low as possible while not sacrificing productivity. An accounting audit takes a look at the company's financial objectives and goals to determine if the policies and practices established by the company are being executed as planned. The auditors suggest how the company can make adjustments to its practices and policies to create results that align with those goals and objectives.

Public Assurance

An external audit helps assure the public that the money invested in a publicly held company is being put to use as stated, instead of those funds going to other purposes or activities. The auditors ensure that the financial paperwork from the company aligns with the financial statements, eliminating the possibility of fraud or incompetence overinflating the company's stated financial success. Through an external audit, those who have invested in a company gain assurance that the company is engaging in the business activities the company represented at the time the investment was made.

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