Financial Statement Audit
An audit is basically an in-depth inspection of account books and other financial records of a company. The audit procedure refers to performing the audit and giving suggestions for the betterment of the company that is being audited. Proper financial records should be provided to the auditor with verified proof, so that the auditor understands the current situation of the particular company, this process is very important so that the auditor provides results accurately and complete transparency and give necessary opinions to the company for its betterment. This process is done by a highly qualified independent auditor. The auditor's report must comply with the financial statements and also with the laws and regulations in order to keep away from the legal fines and penalties. In order to take loans a good audit report of financial statements is very essential. The audit procedure is made easier by the use of frameworks like; Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). An audit is required by the investors, creditors and other users of financial statements of your company, because it provides the uttermost amount of guarantee of a company’s financial statements. The audit is performed by an a 3rd party person, which means the audit is performed by a person who does not belong to the company that is undergoing the audit process. The basic objective of a financial statement audit is providing a sincere and unbiased third-party assurance of a company’s financial statements. The auditor’s expert advice depends on what is shown through the balance sheets, statements of financial position, statement of profit and loss account’s reliability. Confirmation of sales and income is required to show the tax authorities so that they can lend funds for your company with full belief. Even a slight error in the audit report can make a huge difference to a company's position. Resulting in bad effects on the reputation of a company. Some of the basic principles governing a financial statement audit are as follows; Integrity, Objectivity, Independence, Confidentiality, Skill and Competence, Documentation, Planning, Audit Evidence, Accounting System and Internal Control, Audit Conclusions and Report.
Objectives of financial statement audit
There are several objectives of financial statement audit. The two main objectives of financial audit are as follows:
- Scrutinizing the internal check system.
- Checking the legality and validity of transactions.
- Checking mathematical accuracy of account books, verifying posts, balancing, etc.
- Checking the exact difference between capital and revenue nature of transactions.
- Confirming the value of assets and liabilities.
- Providing an audit report with full transparency based on the information provided.
- Detecting and solving errors.
- Errors are those mistakes that are caused due to lack of information provided.
Types of Errors
- Principle errors.
- Commission errors.
- Compensating errors, etc.
- Providing verified financial reports to the income-tax authority.
- Confirming the compliance of the audit report with the Laws, etc.
Types of financial statement audit
There are different types of audits that are performed on the basis of the information provided by the company concerned. It is usually done by a third-party. Financial statement audit is prepared using the frameworks like; Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
Types of Audit:
Financial Statement Audit
- A financial statement is the complete investigation with verification of a company’s financial records. An auditor undergoes the audit procedures and accordingly provides a report, which is very essential in today’s corporate world.
- A compliance audit is the type of audit where the main focus is on the entity complying with the laws and regulations, legal policies etc. An entity must comply with local laws and regulations otherwise the company may have to pay heavy fines. A compliance audit is normally performed by an external auditor.
Audit of internal control over financial reports
- It involves the evaluation of the effectiveness of an entity's authority of control. A high level of effectiveness helps the auditor to cut down on some of the later audit procedures. If the controls are not effective it results in a high risk of misrepresentation of information in the audit report which may affect the position and reputation of the particular company.