HOW TO PREPARE FOR ANNUAL AUDIT
A financial audit is an independent examination of financial information of an entity by a qualified professional to express an opinion and ensure that there is no material misstatement.

HOW TO PREPARE FOR ANNUAL AUDIT

A financial audit is an independent examination of financial information of an entity by a qualified professional to express an opinion and ensure that there is no material misstatement. A financial audit includes an objective examination of the authenticity of a company’s financial records to ensure that its financial position aligns with its financial statements.  It is an unbiased or objective process of evaluating a company’s financial statement and account in which a dispassionate third party, that is, the auditor conducts the audit and develops an audit opinion which helps in decision making and controls

Financial statements offer stewardship reports on a business’s activities within a specific period, providing a record of its financial performance and position. Essentially, they serve as historical records of a business’s transactions, aiding stakeholders in decision-making processes.

Every financial statement must exhibit both quantitative and qualitative characteristics. While some qualities are fundamental (such as faithful representation and relevance), others enhance the information presented (e.g. comparability, understandability, timeliness, and variability), ensuring stakeholders’ interests are objectively met.

Businesses operate in various forms globally, including sole proprietorships, partnerships, or incorporated entities. Regardless of their structure, the responsibility for managing day-to-day operations falls on directors, who may also be business owners or appointed managers. Maintaining records of daily transactions is not only a self-imposed necessity, but also a statutory requirement.

IMPORTANCE OF CONDUCTING ANNUAL AUDIT

 1.Facilitating business operations: Running and keeping a business afloat in today’s economy requires a high level of focus and control. A financial audit allows business owners to make decisions for improving business operations and future development through accurate report.

2.Detecting and neutralizing fraudulent activities:  A financial audit helps to have a detailed report and accurate information on finances, this helps to identify whether fraud occur. It also helps to know if a company is managing its fund vigilantly and appropriately.

3.Identifying opportunity for growth and expansion: Independent auditors help to identify mistakes, omissions, overspending, inefficiencies and other issues holding back an organization, different perspectives can be injected to prevent stagnation in business and spur progress.

4.Improving company’s creditability and transparency: A financial audit helps to increase transparency, which provides assurance to stakeholders and potential investors that financial statements are accurate and reliable. Lenders or investors may request for audited account before providing fund or investing as they need to be confident that the business is financially sound before taking any risk.

5.Ensuring compliance with regulations: Financial audit ensures that financial statements are prepared in accordance with relevant standards. It ensures that financial statements adhere to the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS) depending on the jurisdiction.

AUDIT PROCESS

1.Defining the scope of engagement and establishing objectives of the engagement: The first step is to decide the level of engagement, i.e. engagement for “reasonable assurance” or “limited assurance.” Based on the level of engagement, the “audit independence requirements,” “compliance verification requirements,” and audit teams are formed. Determine the timing, extent and nature of the audit.

2.Risk Assessment: Auditors should use their professional judgment, which comes from industry-specific knowledge to assess risks.

3.Planning for audit (overall audit strategy and an audit plan): An audit plan is a part of an overall audit strategy. The audit strategy decides the scope, timing, and nature of the audit, while actionable items are determined under the audit plan covering the implementation of the audit strategy.

4.Preparing a written audit program: An audit plan contains detailed instructions for audit procedures covering sequential verification processes to obtain audit evidence.

5.Gathering audit evidence: Examining and evaluating source documents, internal controls, verification procedures, financial records, and documentation, and applying professional skepticism and judgment, the auditors maintain documentation and other records that act as the input for forming an opinion.

6.Control testing and substantive audit testing: Control testing refers to examining the process flow and controls of financial software and automation. It is to ensure the effectiveness, reliability, and working of these systems.

7.Finalization: The auditors examine the audit evidence, source documents, and audit notes to form a conclusion, give a professional opinion, and challenge management’s assumptions and assertions regarding financial procedures and related disclosures.

HOW TO PREPARE FOR STATUTORY AUDIT

Responsible Individual: At the initial stage of the audit preparation, it is necessary to select an employee who will be responsible for all stages of the audit and will have all the necessary information in order not to disrupt the normal work of the business

Accounting policy: Accounting documents prepared for the auditor should be properly signed and not outdated. Also, double check accounting policies and ensure it fully reflect the applied accounting method.

Account Reconciliation: The reconciliation of all statement of financial position (balance sheet) account is a vital step in process of audit preparations. It ensures that the balances on the report are accurate. During reconciliation, reference will be made to bank statement, invoices, payment receipts and other source documents.

Financial Reports: The business must get the statement of financial position, income statement, statement of cash flow and statement of changes in equity for the completeness of reports. The consistency and completeness of accounting and reporting data should be checked. These are the key documents the auditor will be assessing.

Source documents: Source documents will be needed if any questions arise in regards to the information presented in the financial statement. Thus, receipts, invoices, orders etc. should be kept well and organized for easy and quick reference

For more information on how to prepare for annual audit you can schedule a consultation with us today and you will be glad you did.

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