What is Financial Audit?

Definition

 

Financial auditing is a process that involves in independent evaluation of a company’s financial reports.

 

The main objective behind performing financial audits is to give managers, directors, investors and regulators reasonable assurance that the company’s financial statements are complete and accurate.

 

A financial audit is an examination of the financial statements and all disclosures by an independent party, the auditor.

 

The audit accompanies the financial statement during submission tot eh required parties.

 

It provides credibility of the financial performance and position of the company.

 

The financial audit is required by many institutions that may need to evaluate the financial status of the business, including, creditors, investors, shareholders and suppliers among others.

 

There are general auditing principles and standards that are used internationally to maintain the integrity of the process and ensure the process is effective.

 

This article discusses how an audit is done in detail to avoid fraud and ensure the process is efficient too.

 

Reasonable Assurance Not Absolute Guarantees

 

No one can presume that a financial audit gives absolute guarantees of the fairness of the financial statements; however, if done properly, it gives reasonable assurance.

 

To perform a sound financial audit, the auditor must put into action a number of procedures such as audit planning, interviews, control performance checks and test work.

 

Financial auditors need to determine the procedures and processes needed to make sure the financial statements are accurate and fairly presented.

 

However, they can never make guarantees that there were no miscommunications or human errors that may lead to mistakes.

    

Audit Planning

 

The initial stage for auditing is creating a plan that will cover the company’s position and performance.

 

This requires the auditor to understand the business situation that they are supposed to cover during the audit.

 

The assessment of the business environment, the product line that the client deals with and the different production processes in the company need to be performed.

 

The auditor should seek permission from the company’s management to study the area before performing the audit.

 

The process requires the auditor to study the accounting policies, how they are applied in the business as well.

 

The business environment includes the risk assessment of the business.

 

The business risks may cause the financial statements to misrepresent the business or the position of the business.

 

The business risks involved also show the feasibility of the business.

 

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