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financial statements audit

Financial statements audit is a process of verifying and examining the information contained in financial statements. Financial auditor has to examine the information provided by management so that they can evaluate whether it is in compliance with accounting standards and acceptable to investors. The purpose of the audit is to determine that the information contained in such financial statement is complete, accurate, and reliable.

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What Is Financial Statements Audit?

It is the process of examining and evaluating the financial statements of an organization in order to ensure that they represent the transactions fairly and accurately. An external or internal auditor audits the financial statements. Audits ensure that the financial statements are maintained accurately and according to accounting standards. After examining these reports audit provides actual financial performance of company. 

Audits are the most expensive type of financial statement examination. A lender typically requires an audit of the financial statements of any entity to which it lends money. Before extending trade credit, suppliers may also require audited financial statements

Objectives Of Financial Statements Audit

Financial statements have four main objectives;

  • Evaluation of whether the financial statements are materially accurate, complete, and in accordance with generally accepted accounting principles (GAAP)  
  • Assessing the possibility of fraud in the organization
  • Asses whether the organization will continue to exist as a viable business
  • Finding ways to improve a company’s performance

Purpose of Financial Statements Audit

An audit of a financial statements contributes credibility to the reported financial position and performance of a business. Financial statements should be audited to make sure there are no mistakes or inaccurate details, so all necessary elements need to be included in the audit.

Financial statements provide information about a company’s financial position and performance. Stakeholders (such as investors) use this information to make economic decisions. They also require audited financial statements to ensure that the company’s finances, such as expenses and profits, are accurately represented.

Auditors’ Qualification and Skills

An auditor is usually a qualified accountant who holds a professional membership in their country. The level of expertise required to create audited and unaudited statements varies among professionals. Auditing is a challenging profession requiring a combination of academic study and on-the-job training. People who qualify as auditors should have the knowledge of auditing, accounting, finance, law, business principles management, and hands-on experience. A good auditor must also have good analytical skills in order to analyze the company’s information, interpret the results, apply professional judgement, and draw appropriate conclusions. Additionally, auditors must have excellent communication skills (both oral and written).

Stages of an Audit

Following are the stages of an audit,

Planning and risk assessment

In the initial stage, the audit team is assembled and general guidelines are laid out for an effective audit. Next, potential risks that could impact the financial statements are assessed by Understanding the business and the economic environment in which it operates.

Internal control testing

This stage involves a critical analysis of a company’s internal controls and their effectiveness in preventing material misstatements. Companies use internal controls to ensure higher operational efficiency, safeguard assets, and ensure accurate reporting of all transactions.

Substantive procedure

Auditor must collect evidence from substantive procedures (substantive audit evidence) in addition to testing controls, which can include a combination of the following:

  • Observing and inspecting assets such as property, equipment and inventory.
  • Confirmation from third parties the company does business with including suppliers, customers and in particular the banks it uses.
  • Investigating differences between the financial statements and relevant external information (such as using an external market index to verify pricing and valuations).

Conclusion

This blog tell us about financial statements audit. As we know that financial statements audit is the only way to  ensure that the financial data and information is free of material misstatement, either due to errors or fraud. In short, we do a financial statements audit if it’s possible to have any doubts at all about the accuracy of the company’s figures.

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