Definition
An audit is an official examination and verification of accounts, records, or financial information to determine accuracy, completeness, or compliance with applicable standards, rules, or laws.
As a verb: to audit is to conduct such an examination — to review, investigate, and certify (or reject) accounts and the vouchers supporting them.
As a noun: the audit is the proceeding itself — the formal process of examination, and by extension, the report or finding that results from it.
The term operates in several distinct legal and regulatory contexts:
1. Financial/Accounting Audit. An independent review of financial statements and underlying records to assess whether they accurately represent the financial condition of an entity. Conducted by external auditors (typically certified public accountants) or internal audit functions.
2. Tax Audit. An examination by a taxing authority — most commonly the IRS at the federal level — of a taxpayer's returns, records, and supporting documents to verify that reported income, deductions, and credits are accurate and lawful. IRS audits range from correspondence audits resolved by mail to field examinations conducted at the taxpayer's place of business.
3. Government/Public Accounts Audit. An official examination of public funds and expenditures by a governmental auditor or comptroller. Historically, this was the core legal meaning: the formal hearing and certification of accounts owed to or by the government.
4. Compliance Audit. A review — by an internal or external body — of whether an organization's operations, procedures, or records conform to applicable laws, regulations, or internal policies. Common in regulated industries such as banking, healthcare, and environmental compliance.
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Common Language
Modern common usage (Wiktionary): An independent review and examination of records and activities to assess the adequacy of system controls, ensure compliance with established policies and procedures, and recommend necessary changes; also, a judicial examination or the result of such an examination.
Historical common usage (Webster's 1913): An examination in general; a judicial examination. Also: the result of such an examination, or an account as adjusted by auditors; the final account.
The common understanding of "audit" tracks the legal meaning more closely than most terms do, but the gap worth flagging is one of legal formality and consequence. In ordinary usage, an audit is often understood as a neutral review process — a check of the books. In legal and regulatory contexts, an audit carries formal procedural rights (notice, opportunity to respond, appeal), defined standards of conduct, and results that can carry binding legal effect — including tax assessments, penalties, disallowance of public expenditures, or regulatory sanctions.
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Common Confusion
AUDIT vs. INVESTIGATION. These terms are sometimes used interchangeably, but they carry different implications. An audit is a structured, systematic examination of records against a defined standard; it begins from a neutral posture. An investigation implies a targeted inquiry into suspected wrongdoing and may carry different procedural rights and burdens. In the IRS context, an examination can shift from audit to criminal investigation — a transition that triggers significant changes in the taxpayer's rights and the agency's methods.
AUDIT vs. REVIEW. In accounting and attestation standards, "audit" and "review" are terms of art with distinct scopes. An audit provides the highest level of assurance and requires extensive testing of underlying records. A review provides limited assurance based on inquiry and analytical procedures. Using these terms interchangeably in a legal or regulatory document can create liability and interpretive problems.
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Why It Matters in Research
The term "audit" appears across an unusually broad range of legal domains — tax law, government finance, securities regulation, administrative law, corporate governance, and professional licensing — and its meaning and procedural implications shift substantially by context. Researchers must resist treating the term as uniform.
Historical sources and older cases use "audit" primarily in the public accounts sense — the formal allowance or disallowance of government expenditures before an authorized officer. This meaning was quasi-judicial: the auditor heard evidence, certified accounts, and issued a determination with legal effect. Modern researchers reading 19th-century materials should understand that "audit" in those sources often refers to something closer to an administrative adjudication than a modern financial review.
In the federal tax context, the distinction between audit types matters procedurally and strategically. Correspondence audits (handled by mail), office examinations (conducted at an IRS office), and field examinations (conducted at the taxpayer's premises or representative's office) each involve different IRS divisions, different records burdens, and different escalation paths. The Tax Encyclopedia entries cross-referenced above address these distinctions in detail.
State audit law varies significantly. State comptrollers and auditors general operate under different statutory mandates, and the legal effect of a state audit finding — particularly regarding disallowance of public expenditures — may differ considerably from federal practice. Researchers working with state government records or public finance should locate the specific statutory framework governing the relevant state auditor's authority.
In corporate and securities law, the word "audit" often appears in governance documents, engagement letters, and regulatory filings where its precise scope (full audit vs. review vs. agreed-upon procedures) has significant legal consequences. Courts have had to interpret these terms when disputes arise over the scope of an auditor's obligations and liability.
Older legal dictionaries, including both Black's editions used here, define audit primarily in terms of accounts and vouchers — a narrower frame than modern usage. They do not address compliance audits, internal audits, or the modern regulatory audit apparatus. Researchers should treat historical dictionary definitions as a starting point for the public accounts and financial records context, not as guidance on modern regulatory usage.
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Historical Dictionary Support
The three source dictionaries present a consistent but narrow picture. Black's (both editions) defines audit in verb/noun pairs: to make an official examination of accounts and vouchers; the process of that examination. Anderson's goes furthest toward the original meaning, noting the Latin root (he hears; a hearing) and framing the audit as an official proceeding to examine and allow, certify, or reject a charge or account — language that underscores the quasi-judicial character of the historical audit.
Anderson's inclusion of the auditor definition is useful: "one who officially examines and allows as proper" — with the allowance function being key. This is the public accounts model, where the auditor's role was not merely descriptive but determinative. The auditor's certification (or rejection) had legal effect on the validity of a claim against the public fisc.
What the historical dictionaries miss entirely is the modern expansion of the term. Compliance audits, internal audit functions, IRS examination procedures, securities regulation audit requirements (including Sarbanes-Oxley mandates for public companies), and environmental or safety audits are all absent — reasonably so given when these dictionaries were written, but significant for any researcher who might rely on them for definitional authority in a modern context.
Webster's 1913 is notable for flagging two now-obsolete senses: "audit" as an audience or hearing (Milton), and as a general receptacle. These senses are not legally operative but are useful for researchers encountering the term in early legal texts where it might mean something closer to "hearing" than "financial examination."
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Jurisdictional Note
At the federal level, IRS audit authority, procedures, and taxpayer rights are governed primarily by the Internal Revenue Code and Treasury regulations, with procedural protections addressed in the Taxpayer Bill of Rights. State tax audit procedures are separately governed by each state's revenue statutes and may provide materially different rights, timelines, and appeal paths. Government audits of public funds are subject to Government Auditing Standards (the "Yellow Book") at the federal level, while state auditor authority derives from state constitutional and statutory provisions that vary considerably across jurisdictions.
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Encyclopedia Cross-Reference
IRS Audit and Examination Overview — Tax Ency. § tax_127
IRS Audit Correspondence Audits — Tax Ency. § tax_128
IRS Audit Office and Field Examinations — Tax Ency. § tax_129
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