Audit - Definition - Law Dictionary Home Dictionary Definition audit

Definition :

Audit, an examining of accounts. An audit may be either detailed or administrative, and is usually both. A detailed audit is a comparison of vouchers with entries of payment, in order that the party whose accounts are audited may not debit his employer with payments not in fact made. An administrative audit is a comparison of payments with authorities to pay, in order that the party whose accounts are audited may not debit his employer with payments not authorised. If in either branch of audit an improper entry is discovered, the auditor surcharges the party whose accounts are audited; whereby the payment must be made by such party out of his own pocket. Where no fraud is suspected, however, and when there has been no negligence, it is common for the surcharge to be remitted [see, e.g., (English) Local Government Act, 18 (23 & 24 Geo. 5, c. 51), s. 230], especially where the party whose accounts are audited has given his service gratuitously.

The public accounts are audited under the (English) Exchequer and Audit Act, 1866 (repealing twenty-two prior Acts).

The most important of the many enactments as to audit of accounts of local authorities were the (English) Poor Law Audit Act, 1848; (English) District Auditors Act,1879; (English) Municipal Corporations Act, 1882, s. 25; and the (English) Public Health Act, 1875, ss. 246, 247. These have been repealed and the (English) Local Government Act, 1933, ss. 219 et seq. Now govern the subject.

The Court can, however, review the auditor's findings on fact as well as law, R. v. Roberts, 1907, s KB 878.

The accounts of public companies in corporated by special Act of Parliament are audited under ss. 101-108 of the (English) Companies Clauses Consolidation Act, 1845 (8 & 9 Vict. c. 16), the (English) Regulation of Railways Act, 1868 (31 & 32 Vict. c. 119), by s. 11 dispensing in the case of a railway company with the necessity, under s.101 of the Act of 1845, of the auditors being shareholders, and by s. 12 providing for the appointment of an auditor by the Board of Trade, upon application made in pursuance of a resolution passed at a meeting of the directors or at a general meeting. The principle of compulsory audit was first applied to companies generally by the (English) Companies Act, 1900, although certain companies, e.g., banking companies, had been the subject of similar legisla-tion form any years. The (English) Companies Act, 1929, ss. 132 to 134 now provide for annual appointment of auditors and sets out their duties. Ss. 122-131 contain express provisions for compulsory annual accounts, whereas in the 1908 Act no express provision was made for it, but such an annual audit was by implication required, Newton v. Birmingham Small Arms Co., (1906) 2 Ch 378. By s. 34 of the (English) Companies Act,1929, auditors must make a report on the accounts submitted to them and on every balance sheet laid before the company in general meeting. In Re City Equitable Fire Insurance Co., Ltd., 1925 Ch 407, the duties of auditors were fully discussed, though this case has been overruled in part bys. 152. Auditors may not be protected by Articles against liability for loss except by their own default.

As to an auditor's personal liability for failure of duty, see Leeds Estate Building & Investment Co. v. Shepherd, (1887) 36 CD 787; Re Republic of Bolivia, etc., Ltd., (1914) 1 Ch 139; and as to setting aside his certificate, Thacker v. Elder, 1899 AC 451. See COMPANY.

The accounts of friendly societies are audited under the (English) Friendly Societies Act, 1896, s. 26, and these regulations are applied to shop clubs by the (English) Shop Clubs Act, 1902 (2 Edw. 7, c. 21); those of industrial societies are audited under the (English) Industrial Societies Act, 1893, s. 13; the accounts of incorporated building societies under the (English) Building Societies Act, 1874, as amended by the Building Societies Act, 1894, which requires that one at least of the auditors shall be 'a person who publicly carries on the business of an accountant'; those of unincorporated building societies under s. 33 of the (English) Friendly Societies Act, 1829 (10 Geo. 4, c. 56); and those of Savings Banks under s. 4, para 6, of the (English) Trustee Savings Banks Act, 1863, and s. 1 of the Savings Banks Act, 1904.

By s. 13 of the (English) Public Trustee Act, 1906, the accounts of any trust may be audited by the Public Trustee or some person appointed by him; as to such an audit and the costs of it, see Re Oddy, (1911) 1 Ch 532.

By s. 22 (4), (English) Trustee Act, 1925 (15 & 16 Geo. 5, c. 19), trustees may, but not more than once in three years unless special circumstances arise, cause the accounts of the trust property to be audited by an independent accountant. Consult Pixley on Auditors; Dicksee on Auditing