This is the first in a series of articles addressing
Auditing in general and Auditing as a function of
Property Management. The second article will
address the System Analysis process. The third article will
look at the role professional organizations play in the field
of auditing.
Understanding Audits
This article offers the reader an opportunity to under-
stand audits and system analysis processes. In a broad con-
text, audits and system analysis are “kissing cousins” – sys-
tem analysis being a subset of audits that relates to govern-
ment contracting, compliance, and property issues. The
general category of audits covers a broad range of audit
types, most of which relate to financial issues (e.g., real
estate, financial portfolio, tax-related audits, or accounting
practice business audits). Audits are complex processes that
are defined by the relationship of the auditor to the author-
ity requesting the audit and the entity being audited.
Today we see the discipline of auditing under fire
because some major auditing and consulting firms have
shown themselves lacking in compliance with industry-
established ethics codes of conduct. The media is ripe with
news describing the conflict generated by the
consultants/auditors when they ignored the principles of
their profession and advised clients to misrepresent them-
selves to the public. They created an inter-dependence
between their customers and their firms that enriched both
entities at the expense of the employees and stockholders.
Auditors are required, by the nature of their profession, to
render opinions (attestations) based upon valid evidence
relating to the condition of their customers’ accounting
practices. The auditor is liable for the accuracy of the opin-
ion rendered. This liability is a constant reminder of the
extensive responsibilities entrusted to a person identified as
an auditor. Responsibilities are not to be taken lightly by
people who conduct audits or desire to become auditors. A
plaintiff may bring suit against an auditor under common,
statutory, or both common and statutory law.1
Auditing is a serious discipline. Auditors must be the
most experienced, knowledgeable, professionally qualified
individuals in a discipline. National Property Management
Association represents the greatest potential for finding
individuals uniquely qualified to be auditors in the disci-
pline of Personal Property (Asset) Management.
The Role of Auditing:
The demand for auditing is a result
of four underlying factors:
The complexity of the system refers to the activity in an
institution or business, along with the interaction of the
exchanges of information, which often make the proper
recording of transactions and allocations of costs difficult
to track.
The physical remoteness of the system increases the
likelihood both of intentional or unintentional error and
of demand for an independent party to examine the
records.
Bias and motives of the provider create a demand for
an independent party to lend credibility to the company’s
financial or property system statements. For example,
management may be more optimistic about the status of
the property system than the Government. The optimism
may be based on accurate or inaccurate statements of the
property department. The property department may have
a vested interest in presenting an optimistic picture of the
system.
Consequences associated with the reliability of infor-
mation are cause for verification when the information is
used for costly business decisions, such as buy-outs, new
contracts, stock evaluation, market pricing, etc.
To understand the auditing process, you should
become familiar with the definitions that are important to
auditing.1
Definition of Auditing: A systematic process of (1)
objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain
the degree of correspondence between those assertions and
established criteria and (2) communicating the results to
interested users.
Systematic Process: As a systematic process, auditing is
a logical, purposeful, structured approach to decision-mak-
ing; it is not an unplanned, haphazard process.
Objectively Obtaining and Evaluating Evidence:
Auditing involves the collection of evidence. Evidence rep-
resents the information collected by the auditor that will
affect the auditor’s decision process. Although evidence
itself may be more or less conclusive in nature, the process
of collecting and evaluating evidence should be objective.
Assertions about Economic Actions and Events:
Assertions are related to the financial statements of the
organization being audited. The auditor is given informa-
tion and statements from the auditee. These statements
represent the auditee’s assertions about actions and events
and include not only the statements themselves but also
the accounting system and process. (This statement looks,
at first glance, to relate only to economic issues and finan-
cial statements. However, if you understand that property
is in fact a function of economic values and that financial
statements include statements of assets and inventories,
you can see where property issues fit.)
The Degree of Correspondence between Assertions
and Established Criteria: Correspondence here means the
12 NPMA Volume 15, Issue 6 – 2003
Auditing Concepts and Standards
BY PATRICK J. COSTELLO, CPPM, CF, SHAMROC K CHAPTER
