Audit simply refers to examine and give comments on the items verified. Financial audit implies an examination of the books of accounts and other relevant records. This will provide the auditor necessary information to give his opinion whether the accounts are properly maintained and complied with necessary statutory, accounting or financial reporting and auditing standards.
A financial statement audit is an independent appraisal of the financial statements prepared by the organization. The basic objective of a financial statement audit is to provide an independent or third-party assurance that the management has, in its financial statements, presented a “true and fair” view of a company’s financial performance.
The result of this examination is a report by the auditor, attesting to the fairness of presentation of the financial statements and related disclosures. The auditor’s report must accompany the financial statements when they are issued to the intended recipients or stakeholders.
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Importance of Audit is increasing with the passage of time – as there is always more and more things to review and whistle when things are deviating. The businesses become more complex and the management of the companies are playing different methods to beat the market. When the countries or societies are progressing at greater speed with technological developments, new ways of doing things are arising.
In order to cover such activities, accounting and auditing have to cope up with the market movements and ensure that stakeholders’ interests are well protected. There has been an ongoing series of disclosures of fraudulent reporting by major companies, this will also point out the need for an effective audit.
Having an expert opinion independently from the management of the company is highly essential to ensure that what is reflected through balance sheet/statement of financial position or Profit or Loss Account is reliable or not. The purpose of a financial statement audit is to add credibility to the reported financial position and performance of a business. Tax authority need the confirmation of sales and income, Lenders typically require an audit of the financial statements of any entity to which they lend funds. Suppliers may also require audited financial statements before they will be willing to extend trade credit.
A well-planned verification is necessary to cover all financial items with audit materiality. An audit involves the collection and evaluation of evidence in support of conclusions arrived. The procedures which will assist the auditor in this direction are.
An audit provides a high level of assurance. But a review engagement gives a reasonably lesser degree of assurance than an audit. As in a review, the auditor does not carry out all those procedures that are carried out in an audit. Publicly held entities must have their quarterly financial statements reviewed, in addition to the annual audit.
Sometimes the requirement is only to report on individual items of financial data or on a set of financial statements to report on the factual findings, say to certify only the turnover of the company. The level of assurance in such agreed-upon procedures is again lower than a review engagement.
In the case of a compilation engagement, the auditor is called upon to prepare the financial statements – where his expertise in collecting, classifying and summarizing the financial information only demanded and not designed to give any assurance on the financial statements.
On Approval of Audit plan, fieldwork is executed by performing walk-through, enquiry, questionnaire etc. Clients are kept informed of the audit process and the status of the audit.
Once the execution stage is completed, all the observations are collated in a draft report. The risk rating is allotted to all observations with the responsibility of the concerned function. This report is discussed with the Management or Authorised personnel to highlight the issues, concerns and deviations.
As it will be a continuous process, the scope does not end with the submission of reports. The follow-up action taken report (ATR) will be represented to the management on the status of observations and its closure status. Any long-pending observations critical to the business will be bought to the notice of the management to set a further course of actions.
Independent review and appraisal of the organization’s financial and relevant operational activities will be better when the internal auditor is not part of the organization and is independent.
We Emirates Chartered Accountants Group is present in the market for the last 15 years with highest professional quality, real-time service and maintaining ethical values. Our qualified chartered accountants at various levels of execution of assignments ensure that requirements as per International Financial Reporting Standards (IFRSs), auditing standards and relevant legal provisions are properly complied with.
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Ans: Normally the external audit is conducted annually. In the case of new entities, the audit period can be extended to 18 months from the date of incorporation. At the same time, it may not be less than 6 months as well. Subsequent audit period will be for a period of 12 months and this period can be extended up to 15 months in case of certain Free Zones. In the case where management of the companies needs special-purpose audits, it can be carried out for a different period or even number of years.
Ans: The manner of appointment, the qualifications and the format of reporting by an external auditor is defined by statute which varies according to the jurisdiction of different countries.
The auditors must be a member of one of the recognized professional accountancy bodies. The auditors normally address their reports to the shareholders of a corporation or to the owners of the business entity. The auditors are subjected to strict rules to uphold their integrity and to establish independence.
Ans: Audits have become almost mandatory in the UAE both in the free zones and in the mainland. In the free zones, authorities insist filing of audit reports as a mandatory requirement for renewing the license of the company. In the mainland, as per UAE commercial company law annual audit is required to be done. Moreover, wherever the bank has financed materially, they will insist on filing of an audit report for continuing the finance facilities. Sometimes, suppliers or customers or other stakeholders ask financial audit report from time to time. With the implementation of UAE VAT, additional responsibility will be there most probably to the management of the company to confirm the turnover through the audit report.