WHAT IS AN AUDIT?

An audit is the process of checking that the way an organisation presents

information about its financial position (its Financial Statement of
Accounts) is true and fair. In essence, true and fair means that, in the
auditors opinion, the companys financial statements offer a true and fair
view of its actual financial position, and that any assumptions they include
are reasonable.
That is not to say that an audit is designed to spot deliberate dishonesty, though it has been
known. Carrying out an audit is a complex and involved process which is most likely to
reveal oversights, accounting errors and over-optimistic predictions. Few unearth serious
issues such as fraud.
A good way to visualise what an audit is all about is to imagine it as a far longer, more
complex, more challenging and more sceptical version of a cross-examination of the
numbers on Dragons Den. An audit is also about gathering the evidence required to work
out whether an organisations claims about profit, for instance, are true and fair.
Once the audit process is complete, an organisation can publish a set of audited accounts
essentially a detailed description of its financial position which has been verified by its
auditors.
The auditor will write an Auditors Report, which essentially sets out an opinion on the
truth and fairness of the audited organisations financial statement of accounts, based on
the evidence gathered during the audit process.
Finally, it is important to note that an audit is carried out on the assumption that the
organisation being audited will be in a position to carry on trading for the following 12
months. If the auditor finds good reasons to doubt the organisations ability to carry on,
then this must be reflected in the Auditors Report, for instance by stating there is a
material uncertainty over the organisations ability to continue as a going concern.

True and Fair View of Financial
Statements | Audit Concept
Contents:
1. Definition
2. Explanation
3. Application & Importance
Definition
True and fair view in auditing means that the financial statements are free from material misstatements
and faithfully represent the financial performance and position of the entity.


Explanation
Although the expression of true and fair view is not strictly defined in the accounting literature, we may
derive the following general conclusions as to its meaning:
True suggests that the financial statements are factually correct and have been prepared according to
applicable reporting framework such as the IFRS and they do not contain any material misstatements that
may mislead the users. Misstatements may result from material errors or omissions of transactions &
balances in the financial statements.
Fair implies that the financial statements present the information faithfully without any element of bias and
they reflect the economic substance of transactions rather than just their legal form.


Application & Importance
Preparation of true and fair financial statements has been expressly recognized as one of the
responsibilities of the directors of companies in the corporate law of several countries such as in the
Companies Act 2006 in the UK. Auditors must therefore consider whether directors have fulfilled their
responsibility for the preparation of true and fair financial statements when providing an audit opinion.
Company law of certain jurisdictions require the auditors to expressly state in their audit report whether in
their opinion the financial statements present a true and fair view of the financial performance and
position of the entity.
- See more at: http://accounting-simplified.com/audit/concepts/true-and-fair-view#definition