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Ramin Ramazanov – Director/Accounting and Audit Expert
In business practice, we often come across audit inspections. What is an audit, and who is the key person behind it? We have discussed the essence of auditing in detail elsewhere. An auditor is a licensed professional who conducts audit inspections and determines the accuracy and reliability of financial statements. Audit firms bring these professionals together and provide audit services through them.
Many companies plan audits in order to obtain an independent review of their financial statements. Some do this because it is required by law, while others do it voluntarily. Regular financial control and audits provide users of financial information with reliable and trustworthy data. According to Azerbaijani legislation, audits are carried out by independent auditors as well as audit firms. Audit standards and audit procedures are regulated by law.
The word “auditor” comes from the Latin word “audio,” meaning “to hear” or “to listen.” Historically, in religious educational institutions, outstanding students who were assigned to examine other students were called auditors. They listened to students, assessed how well they understood the material, and evaluated the quality of their work.
In 1088, a complete inventory of all property owned by citizens of the kingdom was completed in England. This information was compiled into two large books called the “Domesday Book.” The name was not chosen by chance: the information recorded there was considered as accurate as the information to be presented to God on Judgment Day.
These records show that at that time the population of England was only about two million people. This process is considered one of the early foundations for the development and formation of auditing in England.
The oldest known written reference to auditing in English-speaking countries dates back to 1130. It appears in accounting documents related to audits carried out in the archives of the English and Scottish Treasuries.
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Audit firms
By the 1200s, the auditing profession already existed in London, although the creation of audit firms was still far in the future. By the early 14th century, the question “Who is an auditor?” could confidently be answered as “They are appointed officials.” At that time, auditors still worked independently and had not yet formed audit firms.
The first legislative act regulating the work of auditors and defining the nature of auditing was issued in 1285 by King Edward I of England.
From 1844 onwards, a series of company laws were adopted in Great Britain. These laws can be considered the first steps toward planned audits in companies. Under these laws, company managers were required to present signed balance sheets to shareholders once a year and to invite an independent accountant (auditor) to conduct financial control and audits, ensuring the accuracy of the reports presented to shareholders.
In 1880, the Institute of Accountants in England and Wales was established and can be considered one of the first audit organizations. This institution is still active today, developing accounting and auditing standards and publishing various audit materials, including the journal “Associates.”
Throughout its history, the auditing profession has evolved and developed in response to changes in its environment. This naturally raises the question: who is the modern auditor, and how do they adapt to a changing environment?
The environment determines the nature of auditing, the scope of inspections, audit standards, and their content. Today, financial control and auditing are an integral part of market infrastructure, a reliable means of protecting companies from penalties and sanctions, and a special organizational form of control. The auditing profession is becoming increasingly specialized and digitalized. Audit firms now involve narrowly specialized analysts, asset valuation experts, accountants, and IT specialists in their work.
One of the main objectives of auditing is to reduce information risk for users of financial statements to an acceptable level, meaning the risk that financial statements may contain incorrect or inaccurate information.
When financial statements are audited by independent auditors or audit firms, they assess:
The results of the audit are reflected in the auditor’s report.
In Azerbaijan, the activities of auditors are regulated by the Law of the Republic of Azerbaijan on Audit Services. This law answers the question “Who is an auditor?” and also explains issues such as the nature of auditing and audit planning. It defines the rights, duties, and responsibilities of independent auditors and audit firms.
Auditor licensing is carried out by the Chamber of Auditors of the Republic of Azerbaijan, which is an independent financial control and audit authority. The Chamber also oversees compliance of auditors’ activities with international auditing standards and national legislation.
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