What is an 'Audit Department'

An audit department is a unit within a company or organization that is responsible for evaluating operational procedures, risk management, control functions and governance processes. Reporting internally to the audit committee of the Board of Directors and to senior management, the audit department is supposed to be completely objective and receive no influence or interference from the areas of the company or organization it examines.

BREAKING DOWN 'Audit Department'

The chief functions of an audit department are to:

  • determine compliance with policies and procedures
  • assess the quality of internal controls
  • evaluate the quality of risk management
  • evaluate compliance with rules and guidelines established by regulatory agencies (e.g., Securities and Exchange Commission)
  • assess compliance with accounting standards, whether issued by Financial Accounting Standards Board or Government Accounting Standards Board, or other
  • review effectiveness and security of information technology systems
  • review strength of the code of ethics and actions to handle violations
  • provide additional oversight to internal accounting practices that external auditors may not focus on
  • opine on the quality of work of external auditors
  • verify physical assets and inventory
  • investigate employee complaints and alleged fraudulent activities

The audit department delivers findings from its periodic reviews to management and the audit committee of the Board of Directors. Most are perfunctory with recommendations here or there to incrementally improve the business or organization. In some cases, the audit department's work is extremely important in getting to the roots of a problem that must be extirpated. Examples are investigating a sexual harassment claim and how customer accounts were hacked. There are cases, though, that make people wonder whether an audit department itself is doing an effective job. Internal auditors at Wells Fargo evidently overlooked the fraudulent sales practices in retail banking that took place from around 2011-2016, according to reports. Post 2016, more fraudulent activity was uncovered in other parts of Wells Fargo.

RELATED TERMS
  1. Audit

    An audit is an unbiased examination and evaluation of the financial ...
  2. Performance Audit

    A performance audit is an examination of a program, usually in ...
  3. Auditability

    Auditability describes the ability to achieve accurate results ...
  4. Audit Risk

    Audit risk is the risk that the financial statements are materially ...
  5. Audit Committee

    An audit committee is one of the main operating committees of ...
  6. Institute Of Internal Auditors ...

    The Institute of Internal Auditors offers certification, education and ...
Related Articles
  1. Taxes

    Your Chance of a Tax Audit Is the Lowest in Years

    The risk of a tax audit, for you or your company, is the lowest in years, but that doesn’t mean you should skirt the law or stop keeping records.
  2. Personal Finance

    A Day In The Life Of An Auditor

    If you like the idea of examining and attesting to a company's financial performance for a living, a career in auditing might be right for you.
  3. Managing Wealth

    Internal Auditor: Job Description & Average Salary

    Learn about what the job of internal auditor entails, as well as the median salary, education and certifications required and future career path.
  4. Insights

    How The IRS Works: Functions & Audits

    Even the most enlightened citizen curses taxes, possibly while simultaneously acknowledging that they're the price of a civilized society.
  5. Insights

    Financial Auditor: Career Path & Qualifications

    Learn more about what it takes to become an internal or external financial auditor, and determine whether the profession is right for you.
  6. Taxes

    Avoid an Audit: 6 "Red Flags" You Should Know

    Don't make yourself a target - avoid these red flags that could trigger IRS scrutiny
  7. Personal Finance

    Common Interview Questions for Internal Auditors

    Identify some of the most common questions asked during internal auditor job interviews, and learn the best responses to put you ahead of your competition.
  8. Investing

    Evaluating the board of directors

    Learn how evaluating the board of directors corporate structure can tell you a lot about a company's potential.
  9. Personal Finance

    Accountant: Career Path & Qualifications

    Learn the different career paths a new accountant can take, and understand the educational requirements for the career, which vary based on position.
  10. Managing Wealth

    10 Tips for Avoiding a Tax Audit

    To help you avoid a tax audit this year make sure you stay away from these ten red flags.
RELATED FAQS
  1. What are some examples of inherent risk?

    Read about the nature of inherent risk in preparing and executing financial audits, including some common situations that ... Read Answer >>
  2. How is inherent risk assessed by an auditor?

    Learn how CPA auditors assess the levels of inherent risk of different audit areas that they use to design the procedures ... Read Answer >>
  3. How important are contingent liabilities in an audit?

    Read about the importance of contingent liabilities during an audit, why audits are necessary and how contingent liabilities ... Read Answer >>
  4. Who enforces GAAP?

    Take a deeper look at the private enforcement mechanisms behind the generally accepted accounting principles for American ... Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center