Audit is a systematic process that consists of obtaining and objectively evaluating evidence on the statements regarding events of an economic nature of the balance sheets that are reasonable and inform the owners or partners of reliability and validity.
We can conclude that the audit of financial statements is a systematic examination of the records and operations to determine whether or not they are in accordance with the established principles and standards.
The purpose of audit is to determine reasonableness, integrity and authenticity of the financial statements, records and other administrative accounting documents presented by the management to express improvements or suggestions of an administrative and accounting nature.
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There are several types of audit such as financial audit, management audit, environmental audit, government audit, etc. and the best known are the first two.
Process of Audit
The audit process is a guide, where the auditor determine the steps to follow for the execution of the audit to conduct the detailed examination of the records. The financial audit process is systematic because there is an undoubted interrelationship between the different phases which are as follows;
It is about the knowledge of the organization of the company.
It consists of preliminary and specific planning. In preliminary planning, the main activities, goals and objectives are focused. In specific planning, the focus is per component.
Execution of Work
It is about the application of work programs and obtaining evidence.
Communication of Results
This phase is about the audit findings and the report.
It is the follow-up phase on the recommendations.
What is presented in the external audit report?
The following things are presented;
Delivery report receipt of the External Audit Report
Opinion of the External Auditor
Audited Financial Statements
Notes to the Financial Statements
Letter to management on internal control
Evaluation of the internal control system
Follow-up to compliance with previous external audit recommendations.
Internal administrative control
Compliance with tax obligations
Report on Implementation of Supplementary Rules
Analysis of the basic money laundering rules
Evaluation of the annual budget
Evaluation and conclusion of the statement of changes in equity and cash flow
Measurement of managers
Main Components of Audit
A component is a manageable part of the whole, which is selected to facilitate the work of the auditor is a division of an account, a subsidiary, a joint venture of an associated company or other entity whose financial information is included to be audited.
The aspects to be considered in the definition of the components or items relevant to the financial audit are the following;
Materiality with respect to the total of the financial statements
Monetary importance is a criterion related to the significance of an item or group of accounts and has a direct impact on materiality with respect to a total.
Several criteria and methods have been used for its determination, and it is common to speak of a percentage with respect to the total assets and the result of the exercise. The significant changes from one period to another are the important criterion when choosing components of a financial audit.