Auditing is the process of providing an independent opinion over someone else’s work. Auditing comes in many forms such as operational audit and financial statement audit. Operational audit looks at the day to day operations of the company while financial statements audit is concerned (as the name suggests) with the financial statements.
Financial statements are prepared by sole traders, partnerships and companies. All financial statements aim to give the readers:
- A view of the financial performance (income less expenses) for the period
- Give the balances of assets, liabilities and equity as at balance sheet date (collectively known as the balance sheet)
- Statement of movements in equity (includes owner’s contributions and drawings) and
- Notes to the accounts (including fixed assets schedule, detailed balances of accounts receivable and payable, etc.).
A partnership, sole trader or a company can be audited by an independent party, usually by a Chartered Accountant. The auditor looks at the financial statements and performs auditing procedures to give an opinion as to whether they truly and fairly represent the financial operations of the entity for the period and that in the view of the auditors they are free from material misstatements. It also provides an opinion on the control environment.
It is a misstatement whether due to fraud or error that is likely to change the view of the readers of the financial statements. A misstatement of $100 in a multi-million dollar company is likely to be immaterial while a $100 misstatement in a company that makes $1000 a year is likely to be deemed material.
The control environment is the process, procedures and policies that are in place by a company that ultimately lead to the numbers of the financial statements. For example, the company may have a policy that all purchases must be approved by a manager before they are paid. These expenses ultimately determine several items on the financial statements: 1) inventory (stock), 2) accounts payable, and 3) expenses. If during the audit, the auditor finds out that the controls have failed (e.g. several instances where the manager hasn’t approved the purchases), then he will carry out more work to satisfy himself that despite the lack of control, the numbers of the financial statements are not materially misstated or in the alternative he will give provide a qualified opinion.
- Audit procedures are not designed to detect fraud. There are Certified Fraud Examiners (CFE) who perform work in that area.
- An audit does not provide 100% assurance that the financial statements are correct. Instead, they provide a reasonable assurance that the financial statements are not materially misstated.
- It is the responsibility of the directors to ensure that the financial statements are prepared without errors and the responsibility is not of the auditors.
- Auditors do not prepare accounts for which they are auditing, as it would impair their independence
We have several years of experience in auditing coming from Big 4 (Deloitte and PwC) environment. We have dealt with many different industries from charities, pharmaceuticals, manufacturing, financial services, retail and many more. We can perform audits on almost all types of entities from non-profit to companies and sole traders. We can tailor our procedures around risk areas as instructed by you or as identified by us. Why not contact us today to provide an independent opinion on your financial statements?
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