There are many different laws that govern the way in which organizations have to manage their funds. Organizations are held responsible for the proper management of the funds entrusted to them by the government, by investors or by shareholders. Financial audits are used as an instrument to examine the ways in which an organization manages its funds. Almost all organizations, including non profit organizations and charities are required to undergo regular fiscal examinations.

The need for formal auditing of the fiscal dealings of organizations can be ascribed to several factors. The economic environment can be extremely complex and unscrupulous operators can easily defraud the organization if they know that there are no or very few controls in place. It is also necessary to ensure that all organizations comply with the laws.

Auditing is always conducted by an independent professional that has no ties to the organization that is being audited. The professional examines all the records of the organization and then produce a report. The report includes explanatory notes and a summary of the accounting policies of the organization. Normally, the report is presented as part of the annual report of the organization and in many cases it becomes available for scrutiny by the general public.

The report produced by an auditor is really nothing but an account of the financial position of the organization. In order to produce the report, all transactions are examined. Macro issues such as good governance and the aptness of business strategies are also studied. The auditor can examine any issue that may have an influence on the fiscal status of the business and he has to make sure that the accounting practices are sound.

Many businesses and other organizations submit to auditing voluntary. Non profit organizations, for example, often only qualify for grants or donations if they are able to provide proof that they are able to manage their funds responsibly. Business owners may need an independent report in order to tender for large contracts or when they are trying to attract new investors.

It is important to understand that the report produced by an auditor is based upon the documentation and records that have been made available to him. The auditor also cannot realistically examine every single document because this will simply take too long. The report is therefore based upon a selective process. Of course, the audit also covers a very specific time frame and the report does not reflect any financial dealings outside that time frame.

It is important to choose an auditor that operates independently and that has a reputation for objective reporting. No auditor can produce a valid report unless all records and documentation is made available for scrutiny. Many businesses prefer to use the same auditor year after year, because a long term relationship allows the auditor to report with full cognizance of the history of the business.

Under certain circumstances auditors are required to report their findings to the authorities. Generally however, auditors are not enemies and they are not out to entrap businesses and individuals. Their job is simply to examine and to report objectively.

Read more about How Financial Audits Can Help Organizations Perform Better.