Financial Audit
Financial audit is an important tool to provide assurance on the accuracy and reliability of an organization’s financial reporting and performance. It is also an effective mechanism to support proper governance and management of an organization’s assets and liabilities. Financial audit is a process which, when conducted in accordance with Generally Accepted Auditing Standards (GAAS) or equivalent standards, assesses if financial statements are true, fair and reliable. A financial audit report is provided by the auditor at the end of the audit process and include details on procedures undertaken, findings and any recommendations for improvement.
Financial audits are important as they serve to provide assurance that the organization’s financials are reliable and consistent, and that they can provide a basis of trust and confidence to stakeholders. There is also the value of uncovering areas of concern, making recommendations and providing opinion on the financial statement. It is important to note that an audit is a holistic process which includes the examination of the entity’s governance and management of the financial reporting process.
The purpose of a financial audit is to test and confirm the accuracy of financial information reported by an entity, and to detect any potential misstatements and irregularities. The scope of an audit typically covers financial statement audit, operational and compliance audit, risk management audit and control tests. Along with the general results of the audit, the auditor typically issues an opinion on the financial statements. This assessment is based on the audit procedures undertaken and the evidence collected. Furthermore, a financial audit may also provide value beyond the examination of financial statements and identify material internal control weaknesses and suggest methods for improvement.
The process of a financial audit typically starts with the auditor establishing an understanding of the entity, its industry and operations. This is an important step in the process as it helps the auditor to identify the risk areas and areas of focus for the audit. The second step is for the auditor to analyze the financial statements and conduct tests on the supporting documentation. This includes the examination of the documentations that the entity uses in its financial reporting process - such as accounting and process policy documents - and performing tests on transactions and balances. Lastly, the auditor should prepare a report detailing its findings and any adjustments or corrections that may be required.
Overall, financial audits are very important in providing assurance on the accuracy and reliability of organizational financials. It serves to increase accountability and produce reliable financial information which can be trusted by stakeholders. Furthermore, it is also a useful tool to uncover risks and weaknesses in internal controls and processes, as well as to provide opinion on the fair presentation of financial statements. Financial audit is an essential part of the financial reporting process.
