AUDIT Definition

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AUDIT is the inspection of the accounting records and procedures of a business, government unit, or other reporting entity by a trained accountant for the purpose of verifying the accuracy and completeness of the records. It could be conducted by a member of the organization (internal audit) or by an outsider (independent audit). A CPA audit determines the overall validity of financial statements. A tax audit (IRS in the U.S.) determines whether the appropriate tax was paid. An internal audit generally determines whether the company's procedures are followed and whether embezzlement or other illegal activity occurred.

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DEFEASANCE is a. the release of a debtor from the primary obligation for a debt. A legal defeasance could take place in absolute terms, i.e., the debt could cease to exist for anyone (by being forgiven or set aside), or the creditor could formally recognize that another party has taken over the primary obligation for the debt; and, b. in securities, a technique used by bond issuers to dis­charge old, low-rate debt by purchasing a smaller amount of higher-yielding U.S. Treasury debt. The Treasuries are held in trust to service the old debt being retired.

INSOLVENCY occurs when a business is unable to pay debts as they fall due.

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