Financial Audit

Typically audits were used for merely collecting information about financial systems and the financial records of a company. However recently auditing means to inspect, examine and assess the financial statements. There is a two-fold purpose of auditing; firstly, it makes sure the financial statements made are free from errors and frauds. Secondly, it provides assurance to the shareholders and investors that the financial statements of a company are accurate and conform to the accounting standards.

Audits are mainly executed to find out the validity and reliability of information. Financial auditing has given many advantages to different sections; it is one of many promising functions provided by accounting and auditing firms. The errors and frauds committed intentionally or unintentionally are exposed by an audit and its continuous presence minimizes their future occurrence.

Many organizations appoint separate internal auditors who do not stick to the tasks of simply verifying financial reports and statements but also investigate the internal controls of the organization.
Financial statements and records are mainly used by the investors and creditors to make their decisions. However, these statements are made by the companies themselves. How can these statements be trusted? This is where the role of auditing comes. The users cannot examine the accuracy of financial statements themselves, even if they want to. For that reason, auditors review and test each account in the financial statements for them.

Auditors perform a number of tasks; they send a formal mail to the banks, suppliers and customers of the company to check the balance of the cash, accounts receivable and payable. Additionally, they examine the internal control of the companies to verify whether the characters of the employees are honest and truthful. Thus, it keeps the accounts clerks regular and vigilant in preparing timely accounts. The users cannot determine the correctness of financial reports and statements without auditing.

Because the outsiders trust and refer to the opinions of auditors in the financial statements, they choose whether they would like to depend on these financial statements in making decisions. If the opinions of auditors are reliable it means the company neither overstates nor understates its accounts.

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Auditing is an evaluation of a number of aspects involved in organizations. Different system, process, project and products in organizations are required to be inspected for their authenticity by expert people called auditors. In simple terms, auditing is all about inspecting the internal operations of organization, business, and companies. Auditors, who do auditing, examine different procedures of organizations to monitor their genuineness and reasonability. The process of auditing carried out as per approved and accepted standards, statutes, regulations, or practices.

In a routine run there may be a number of hampers that influence the functions of organizations. Auditing analyzes financial activities causing irregularities in business. Companies looking for auditing into their organizations concern CA firms that remain expert in resolving different company matters with help of professional chartered accountants. CA firms offer different auditing services such as:

Financial Auditing Services – There are several financial statements involving balance sheet of companies by parties or a legal entity. Such auditing is done to establish an independent & fair opinion on whether the financial statements, accounts, and bills are accurate, and are complete and presented fairly.

Internal Audit / Concurrent Audit service – For in depth checking of day-to-day transactions, large business organizations require internal audit / concurrent audit. An internal auditing service provided by CA firms involves assessing and evaluating the internal control of a company. Internal auditing ensures improvement and value addition to different company-operations. This auditing is always done to boost up the strength of internal systems for minimizing the chances of accidental or deliberate accounting errors and omissions.

Tax Audits – Tax audits refer to an investigation into the background of tax returns that are submitted by businesses to a tax agency. Tax audits are recommended to discourage tax avoidance and evasion. A tax audit is based on an expression of the tax auditors’ opinion on the truth and correctness of certain factual details.

Management Audit Service – A management audit involves reviewing, checking and making sure that all management procedures in an organization are being conducted in right way to assure quality, integrity or standards of provision that will bring positive outcomes. Management audit also includes maximizing the management performance by improving different internal processes of organizations.

Operational Efficiency Audit Service – In an organization, there are a number of operations which can be carried out only if huge resources have been invested. Operational efficiency audit service ensures that all operational resources are used for generating as maximum as possible outputs/ return/ value for organizations. Operational efficiency audit also includes countering a variety of internal processes to measure the performance of management and quantity of waste.

Special Investigative Audit Service – Special investigative audit service helps organizations in marking the areas where situation of fraud and financial impropriety may occur. CA firms providing special investigation audit services assist organizations in best possible manners to find out cause for any frauds and preventing them.

Due Diligence Review CA Firms are hired for due diligence review so that corporate and businessmen can be helped in their merger, acquisitions, joint ventures and investments.

You many find a number of CA firms in Delhi providing a range of auditing services.

Log on to http://www.jktco.com for more information about audit services.

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Business owners will find out at some time in the business history, (usually early on!) that they require financial information to satisfy essentially two bodies – shareholders/management, and, secondly, lenders!

There are essentially 3 types of financial statements:

Audited
Review Engagement
Internal

Audited Statements – Companies who require audited financial statements. Why does a company require an audited financial statement? Business owners quickly realize this type of statement comes with a very significantly higher cost. So why the need? The best way to describe the need is that there is an important interest in the company, and that interest comes from an owner /shareholder, or lender. The audited statements report to those two parties and validate that the auditor, an independent third party, is saying that the financial represent the true picture of the company, and if there are any serious inadequacies then those are pointed out.Any ‘ inadequacies’ relate to GAAP, which, stands for Generally Accepted Accounting Principles ‘. Let’s use a quick example. There are primarily two methods that corporations use to count and record inventory. If the company was using an alternative method, the auditor would point out that the GAAP is in effect being broken. That’s a quick simple example. We are most familiar with public companies requiring audited financial statements. That is because a public company has usually thousands of investors. They, 99% of the time, don’t get to meet management or see the company. They rely on the audited financial statement to reinforce the credibility of the financials. Audited statements are costly and time consuming to prepare, and require significant company and auditor inter-action. However the importance of the audited statement can’t be over emphasized.

Review Engagement Statements – This type of financials statement ranks 2nd in the hierarchy of financial statements. (Audited is # 1!). Review Engagement Statements are prepared by a 3rd party accountant; however they come with only 3 basic elements to them.

1. The accountant should have a ‘ reasonable knowledge of the company’
2. His questions, comparisons, and discussions should provide an inference that the financial statements seem reasonable
3. The statements should be presented in a manner acceptable to GAAP ( even though individual accounts aren’t checked )

Internal Financial Statements – These are exactly what are inferred. They are financial statements prepared internally for management, or for monthly reporting to their bank. We can essentially say that management or the third party accountant simply collects information, summarizes it, and notes that information is somewhat restrictive in nature as it lacks the additional due diligence in Notice To Reader and Audited statements.

In summary, there are 3 times of financial statements. They are given various weight and significance based on who prepared them, and how, and under what standards of accounting competency. A start up firm might start its history with internal statements, as the company grows it would be required by lenders and other stakeholders to prepare Notice to Reader Statements. As the company grew very large, and went public perhaps the need to prepare Audited Financials would be a necessity.

Business owners and financial managers should continually be determining if the type of statement they currently prepare satisfies current needs, and management should also be looking at the next evolution in the company’s financial reporting needs.

Stan Prokop is the founder of 7 Park Avenue Financial.
See http://www.7parkavenuefinancial.com The company originates business financing for Canadian companies and is a specialist in working capital and asset based financing of all types. For more information or contact details please see: http://www.7parkavenuefinancial.com/Home_page.html

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An IT audit or information technology audit is an examination of the working of the information technology infrastructure. This seeks to find out if there is proper working in the IT sector and if proper control is being maintained. These audits can be undertaken independently or in association with other forms of company audit such as financial audit, inventory audit etc. IT audit was formerly called EDP or Electronic Data Processing audit. The main purpose of an IT audit is to find out if the information system is working efficiently. It tries to find out if the information system is safeguarding assets, and working towards the overall development of the organization.

Although both IT audit and financial audit is directed towards the analysis of the working of the organization, there are various prominent ways in which these two differ. In case of financial audit, the auditor lays a lot of importance on internal control. It is primarily of importance because the auditor has to later extensively place reliance on internal control. As a result of this, the work of the auditor gets substantially reduced he does not have to make a detailed study of all the financial books while conducting the financial audit. On the other hand, the focus of IT audit is to find out the risks associated with the information assets and checking if there are adequate measures in force to eliminate or reduce these risks. An auditor tries to evaluate the information systems availability, its confidentiality and its integrity by answering certain questions. For example to check the availability, the auditor asks if computer systems would be available for business when it is required. The confidentiality can be checked by seeing if the information in the system can be accessed by unauthorized users. The auditor can satisfy himself regarding the integrity by checking if the information provided by the system is accurate, timely and reliable. An IT audit can take two forms it can be either of the form of a “general control review” or an “application control review”.

There are three broad approaches to carry out an audit. They are technological innovation process audit, innovative comparison audit and technological position audit.

In the case of innovation process audit, the auditor tries to find out the risk profile of its new and existing projects by assessing the experience of the company in its chosen field, the industry and the market.

Comparison audit deals with analysis of the companies innovative abilities as compared to its competitors.

Technological position audit deals with reviewing the technologies needed by the business. It also classifies them in to one of the four categories of base, key, pacing and emerging.

The auditors who perform IT audit hold a very important responsibility and hence it is recommended that only people with the required skill should be appointed as the auditor. The person to be given the post of an auditor should have an adequate knowledge of information system along with this; he should also have a general understanding of the accounting principles. Apart from this it is always beneficial to appoint an auditor who has received the CISA (Certified Information Systems Auditor) credentials.

Gavin Sanderson owns and operates http://www.it-audit-resource.com Learn more valuable information about IT audit by visiting http://www.it-audit-resource.com

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