I keep hearing this term from my accountant friend and have absolutely no idea what it means. I tried googling it but that just left me even more confused than I was.
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Say you bought shares in a company. This means that when that company makes a profit, they give you a small part of it as dividends
This year, the company tells the shareholders that they didn’t make any profit and that they won’t be paying dividends. They release a report showing how their expenses are greater than their revenues as an explanation
Now, you’re astute and notice in the report that the company pays way more in salaries this year than it did in its previous reports despite seemingly not having more employees. That’s when you might want to ask for an audit to be done, to clear up why that is.
The auditors go in the company, dig in all of its documents to find the cause of the discrepancies, and maybe notice that the guy in HR is creating fake employees and pocketing the profits that should be going to you. Or maybe they find out that the cost of labour has just increased a lot this year, who knows until the audit is done.
That’s what an audit is in a nutshell : a fact checking process to make sure there’s no funny business, especially to enforce legal obligations (ex : the IRS will audit you if your tax declarations look suspicious).
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