Financial Audit
A financial audit involves an examination of financial planning and reporting process, the conduct of financial operations, the reliability and integrity of financial records, and the appraisal of the controls relating to financial functions. A financial audit is performed before the release of the financial statements (typically on an annual basis), and will overlap the year-end (the date which the financial statements relate to).
Generally a financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion. The audit opinion is intended to provide reasonable assurance, but not absolute assurance, that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework.
The Examination of Financial Planning and Auditing Reports
The purpose of an audit is to provide an objective independent examination of the financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement, reduce investor risk and consequently reduce the cost of capital of the preparer of the financial statements. Internal auditor must examine the company’s financial report from the early stage of a sources till the end of accounting period. These will include the six steps of financial planning process as below:
The examination in every steps in the financial planning and reporting process is important to ensure that the role of internal audit outlined in the internal audit strategy considers the views of all
The Conduct of Financial Operations
There are few audit process and techniques use for collection and accumulation of audit evidence, certain methods and means generally adopted by auditors are:
Posting checking
Testing the existence and effectiveness of management controls that prevent financial statement misstatement
Verification of existence, ownership, title and value of assets and determination of the extent and nature of liabilities
An audit is generally performed in order to provide assurance to a third-party decision maker, such as stockholders, creditors and banks, grantors, and regulators. The objective of an audit of financial statements is to express an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and cash flows in conformity with generally accepted accounting principles (GAAP) or other applicable financial reporting framework. Therefore, while performing a financial statement audit, the following must be clarify by the auditor:
Gain an understanding of the organization and its environment, including its internal control Assess the risk of material misstatement of the financial statements whether due to error or
fraud
Design the nature, timing, and extent of further audit procedures that are responsive to the assessed risks
Test the accounting records and responses to the inquiries by obtaining sufficient,
appropriate, and corroborating evidence through inspection, observation, confirmation, and analytical procedures
Provide a written report expressing our opinion
Internal audit services are generally provided to meet a third party requirement, therefore the auditor must look for greater value and opportunities for the organization to improve organization's operations, increase efficiency and effectiveness, and increase the bottom line according to
organization goals, policies and procedure and also the laws and regulations.
It is clear that the concept of reliability is of real interest to a wide variety of audit stakeholders. There are five key aspects of reliability in a picture of what the statement ‘audited financial statements should be reliable’ means:
Faithful representation
Information in audited financial statements must faithfully represent what it purports to represent in accordance with accounting standards.
Fitness for purpose
Reliable audited financial statements need to be fit for purpose.
Robustness
In reality audited financial statements are used in varied and sometimes unpredictable ways. Auditors should take steps to address the robustness of audited financial statements.
Organisational reliability
By virtue of being reputational intermediaries, auditors give organisations the appearance of being reliable and producing reliable information. Auditors should therefore be concerned about broader aspects of organisational reliability.
Audit firm reliability
The auditors’ reputational intermediary role demands that audit firms examine their own reliability.
‘Integrity’ is primarily a personal quality. Integrity in relation to financial statements is the result of both the integrity of those involved in preparing the financial statements and the
robustness of processes by which financial statements are prepared. It involves several aspects and each one is just as important as another. When integrity exists in all phases of the auditing process the result is an audit that exhibits accuracy, completeness and honesty. Conversely, these are key ingredients to have integrity in the audit process. There are the preparation phase, performing phase, report and follow-up. All of these activities are important and each must have integrity when performing them. The purpose of this article is to present information, which signifies how audits must have integrity and the impact when they do not. Integrity in the decision to audit is critical. This decision must be based on an honest evaluation of the facts and circumstances. For example, today many companies in the U. S. and the world have either a contractual requirement or procedural requirement to have an ISO 9000 quality system.
Therefore, with commitment to reliability and integrity in financial records and reports, Internal Auditing provides value and trust to stakeholders as an independent source of objective advice.
Investors and shareholders: These people own the organisation but, in many cases, will not be closely involved in its day to day running. So, again, an independent audit is very interesting to them, since it provides a trusted second opinion on the organisation’s financial statements and, in turn, gives some, insight as to how well it is being run.
