After becoming a public listed company you are required to file annual financial statements accompanied and attested with an auditor’s report. In fact, the Commercial Companies Law states that the audit of accounts is necessary for all companies in the mainland. These audited financial statements are available to all the government authorities, financial institutions, shareholders, public and every stakeholder included.
An auditor’s report is an assurance to the users that management has prepared financial statements as per the applicable financial reporting framework and show a true and fair view of the business performance. An audit report is required in the first place due to the gap between ownership and control of the company.
An external auditor is an independent auditor hired by the audit committee (that is answerable to the BOD) to provide comfort to the shareholders that the management that is in control has prepared the financial statements free of material misstatements whether due to fraud or error. It basically adds credibility to the management’s stance.
What is a financial statement audit?
At A&A Associate, financial statement auditing services are available as well. Our certified accountants will do a comprehensive examination of your financial statements and accompanying disclosures. We will attest to the truthfulness and fairness before issuance of your financial statements.
Procedures of financial statement audit:
- Planning and risk assessment: We will do a methodical planning of how to carry out the audit by gaining an in-depth understanding of the business and its environment. After which, the first and foremost step would be to evaluate and assess the risk of having misstatements in the financial statement. The audit procedure will be customized organization to organization as per its needs and requirements. In case of a high risk, rigorous accounting procedures shall be applied whereas in case of a low risk, our team will be a bit lenient regarding the audit procedures.
- Internal controls testing: Internal controls refer to the set of activities and procedures integrated into the system to avoid any sort of fraud or error in relation to the transactions entered or safety of stock and assets. Usually the main concern in this area is segregation of duties, authorization process and safeguarding of assets. Testing of internal controls also make part of the audit risk. A strong internal control makes audit a bit less lengthy and detailed whereas a weak internal control system would require extra diligent audit procedures.
- Substantive procedures: Based on the planning and risk assessment, substantive procedures will be performed for each line item booked on the financial statements or disclosed in the notes to accounts. Our services at A&A associate would include the following few procedures as well as others as per your business needs:
- Cash – Review of bank statements, petty cash, count of on-hand cash, interviewing the cashier, bank confirmations, and review of bank reconciliation statement.
- Accounts receivable – End balance check, reconciliation statements, negative and positive confirmations, testing of cut-off procedures and yearend sale.
- Inventory – Physical stock count, examination of supplier invoices, testing of cut-off, receiving and shipping procedures, obtaining confirmation of inventory list at other locations, testing of computation of allocated overhead etc.
- Accounts payable – Confirm balance, test cut-off procedures.
- Assets – Observation of assets, authorization of purchase and disposal, recalculation of depreciation and amortization, testing for impairment and verification of market value.
- Revenue – Review of sales invoices, sending negative or positive confirmations to customers, review subsequent transactions including sales returns or abnormal cash discounts or abnormally high prices.
- Expenses – Examine and review all the bills and any subsequent transactions.
Every company should review their financial statements quarterly along with annual audits to ensure a clean audit report.