Legal Definitions - audit

An audit refers to a systematic and independent examination of an individual's or organization's records, accounts, financial statements, or operational processes. The purpose is to verify their accuracy, completeness, and adherence to established rules, regulations, or internal policies. When someone "audits" something, they are performing this formal review.

Here are a few examples to illustrate the concept of an audit:

• Imagine a local bakery that has been in business for several years. The Internal Revenue Service (IRS) decides to conduct a tax audit of the bakery. During this process, IRS agents will meticulously review the bakery's financial records, including sales receipts, expense reports, payroll records, and tax filings, to ensure that all reported income and deductions are accurate and comply with federal tax laws.

  This example demonstrates an audit as a formal examination of financial records to verify compliance with external regulations (tax laws).

• Consider a large pharmaceutical company that manufactures various medications. To maintain its license and ensure product safety, the company regularly undergoes a regulatory audit by a government health agency. Auditors will inspect the company's manufacturing facilities, quality control procedures, documentation of drug trials, and production logs to confirm that all operations meet strict industry standards and government health regulations.

  Here, the audit involves a formal examination of operational processes and records to ensure compliance with specific industry and government standards for safety and quality.

• A university's student housing department decides to conduct an internal audit of its dormitory safety procedures. They review maintenance logs, emergency evacuation plans, fire drill records, and interview staff and residents to ensure that all safety protocols are being followed and that the living environment meets the university's internal safety guidelines and local building codes.

  This illustrates an audit as an internal examination of operational procedures and records to verify adherence to both internal policies and external building codes.