A Quick Introduction to Audits

Auditing is the process of examining, evaluating, and expressing an opinion on the relevance and accuracy of the financial information presented in a company’s financial statements. 

What is the purpose of auditing?

• Auditors check that management has disclosed all material information about the company’s assets, liabilities, income, and expenses. They also review management’s estimates of future cash flows and related disclosures to determine whether they are reasonable.

• Auditors examine every aspect of a company’s finances, from the books and records to its management and operations. They look for misstatements in financial reports, such as errors in accounting procedures or fraudulent actions by employees or managers. One of the biggest advantages of auditing is that auditors also check whether companies are complying with laws and regulations that affect their business practices.

• Auditing is a legal requirement for public companies. It is also required for private companies that have issued stock. However, if you are looking to sell your business or provide services under contract then it’s important to seek out an independent audit too.

What is the process of auditing?

The process of auditing can be broken down into four distinct steps:

1) Determine whether there is any material misstatement in the financial statements;

2) Confirm that all transactions are properly recorded and controlled;

3) Determine whether there are any other errors or irregularities that could affect the financial statements;

4) Determine whether any conditions affect the reliability of the financial statements

What are the different types of audits?

1. Internal audits

Internal audits are conducted by an internal auditor who is a member of the organization. This type of audit is often done at the request of management and may be performed periodically. 

Internal auditors are typically assigned a specific area within an organization where they will focus their efforts. Internal auditors have a wide variety of responsibilities, including:

• Performing risk analysis and determining which risks are most critical to the company’s success to help determine where to allocate resources.

• Reviewing financial records and procedures to ensure compliance with all applicable laws, rules, and regulations.

• Providing advice on how to improve efficiency, effectiveness, and profitability based on results from previous audits.

• Testing management’s assumptions about compliance with laws, rules, and regulations.

2. External audits

An external audit is the most common type of audit, and it’s conducted by a third party. External audits are usually performed by an outside agency hence they are also called “third-party audits”. The external auditor reviews your financial statements and other information to assess whether the company has been operating correctly and within its policies.

An external audit is more comprehensive than an internal audit because it examines all aspects of your business operations, including:

• Financial records. This includes reviewing everything from the profit and loss statements to ensuring company is following the right GST invoice format

• Internal control procedures

• Management’s responsibilities for safeguarding assets, minimizing risk, and complying with laws and regulations

3. Government audits

Government audits are performed by the government itself. The primary purpose of these audits is to ensure that all financial records are in order and that no one is cheating the system.