Legal Definitions - double audit

A double audit refers to a situation where an organization or entity undergoes two separate, distinct examinations of its financial records, operational processes, or compliance with regulations. These audits are often conducted by different parties, for different purposes, or under different mandates, but they pertain to the same subject matter or period.

Here are a few examples to illustrate this concept:

• Imagine a large bank that is publicly traded. By law, its annual financial statements must be audited by an independent accounting firm to ensure accuracy and transparency for investors. At the same time, because it operates in a highly regulated industry, a government financial regulatory agency might conduct its own separate audit specifically to assess the bank's compliance with anti-money laundering laws and consumer protection regulations. In this scenario, the bank is subject to a double audit: one for its general financial reporting and another for specific regulatory compliance.

• Consider a non-profit organization that receives significant funding from both private donors and a federal grant. The terms of the federal grant require an annual independent audit to verify that the grant money was spent according to the specified guidelines. Separately, the non-profit's own board of directors might commission an internal audit to review the overall financial health, operational efficiency, and adherence to internal policies across all its funding sources. This represents a double audit, with one focused on grant compliance and the other on broader organizational governance and financial management.

• When one company is planning to acquire another, a double audit can occur during the due diligence phase. The acquiring company will typically hire its own team of auditors to meticulously examine the target company's financial records, contracts, and operational risks to ensure it understands the true value and potential liabilities. Simultaneously, the target company, to fulfill its fiduciary duty to its shareholders and to validate the information being provided, might also engage its own independent auditors to prepare or review financial statements and other key documents. Here, both the buyer and the seller are, in effect, conducting or commissioning separate audits of the same company's information.