Financial Statement Audit
The term “audit” simply means to look over and comment on the items that have been validated. An audit of the books of accounts and other pertinent data is referred to as a financial audit. This will offer the auditors the information he needs to determine if the accounts have been properly managed and whether they comply with statutory, accounting, financial reporting, and auditing requirements.
A financial statement audit is a third-party examination of the organization’s financial statements. A financial statement audit’s main goal is to provide independent or third-party assurance that management has provided a “true and fair” assessment of a company’s financial performance in its financial statements.
The auditor’s report attesting to the fairness of the financial statements and related disclosures is the result of this examination. When the financial statements are distributed to the intended receivers or stakeholders, the auditor’s report must be included.
With the passage of time, the importance of auditing grows as there are more and more items to evaluate and flag when things go wrong. Businesses are becoming more complex, and company executives are employing a variety of strategies to beat the market. When countries or cultures advance at a faster rate due to technical advancements, new methods of doing things emerge.
Accounting and auditing must be able to cope with market fluctuations and ensure that stakeholders’ interests are effectively protected in order to cover such activities. There has been a steady stream of exposes of fraudulent reporting by prominent corporations, highlighting the need for a thorough audit.
Having an expert opinion that is independent of the company’s management is critical in ensuring that what is reported in the balance sheet/statement of financial position or Profit and Loss Account is accurate. A financial statement audit’s goal is to give credibility to a company’s reported financial situation and performance. Lenders often need an audit of the financial statements of any organisation to which they lend funds, and tax authorities want confirmation of sales and income. Before extending trade credit, suppliers may request audited financial statements.
To cover all financial items with audit materiality, a well-planned verification is required. An audit entails gathering and evaluating data to support the conclusions reached. The following are the processes that will assist the auditors in this direction.
Risk assessment and planning: It entails learning about the company and the environment in which it operates, and then utilising that knowledge to determine whether there are any risks that could affect the financial statements.
Testing of internal controls. It entails evaluating the efficiency of an entity’s suite of controls, with a focus on issues including correct permission, asset safeguarding, and duty segregation.
Procedures of substance. It entails a wide range of operations, of which only a small sample is used.
A high level of assurance is provided by an audit. A review engagement, on the other hand, provides a lower level of confidence than an audit. The auditors do not do all of the processes that are performed in an audit in a review. In addition to the yearly audit, publicly traded companies must have their quarterly financial statements scrutinised.
It is often just necessary to report on specific financial data or a set of financial statements to report on factual findings, such as certifying merely the company’s turnover. As with a review engagement, the level of assurance in such agreed-upon procedures is lower.
In a compilation engagement, the auditors are hired to generate financial statements, but his competence in gathering, classifying, and summarising financial data is just required, not intended to provide any assurance on the financial statements.
Following approval of the audit plan, fieldwork is carried out, including walk-throughs, inquiries, and questionnaires. Clients are kept up to date on the audit process and its progress. Submission of Draft/ Final Reports to highlight the issues with risk rating and reporting to the management
All of the observations are compiled in a draught report when the execution step is done. All observations with the responsibility of the concerned function receive a risk rating. To emphasise the difficulties, problems, and deviations, this report is reviewed with Management or Authorized employees.
The scope does not end with the filing of reports because it will be an ongoing process. The status of observations and its closure status will be communicated to management in the follow-up action taken report (ATR). Any long-awaited observations that are crucial to the business will be brought to the attention of management so that a course of action may be taken.
When the internal auditors are not a part of the company and are independent, the evaluation and assessment of the organization’s financial and pertinent operational operations will be better.
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