Unpacking the financial statement audit process
What Is an Audit?
The term audit is often used in reference to a financial statements audit for businesses. The process of a financial audit requires that an independent party reviews the financial statements of a company in and objective way in order to evaluate the financial statements to make sure that all financial records are a fair and accurate representation of the transactions the business has conducted over a certain trading period. The financial statements audit has to be conducted by an auditor or an auditing practice such as PSTM.
The purpose of financial statement audits?
A financial statement audit serves one main purpose – to add credibility to the reported financial position and performance of an organisation, which in turn creates shareholder confidence. Audited financial statements are also required most of the time when a business is looking for funding or finance of any sort. Lenders will usually request the financial statements of a business before lending any funds.
The benefits of conducting a financial statement audit
The top 5 benefits of a financial statement audit
- Provides an overview an history of the business – Such a thorough overview presents a unique view of where the business has come from and where it is going. Good or bad, it allows directors and owners to make informed decisions on where to go and what actions to take next. Problems are identified and proactive action can be taken. Similarly, opportunities will emerge that could take the business into an entirely new growth phase.
- Highlights areas for improvement of internal controls – As mentioned above, issues that are identified can be proactively addressed. Knowing where these issues are occurring will allow for better focus on what is causing them in the first place. These could be internal control issues, corporate governance issues, management issues or shortage of resource issues. In the end, knowing where the problems are will lead to a more efficient operational environment and inevitably cost savings.
- An audit stimulates conversation and new business – When a business is able to discuss its profit and loss openly and with confidence, it creates an opportunity for conversation with shareholders, management and staff. It aligns the thinking and objectives of the business, which in turn improves efficiencies and profitability.
- It helps with risk management – The famous adage “you don’t know what you don’t know” applies here. If you don’t know where the risks are in your business, how will you ever be able to fix it? An audit offers a business best practice solutions for managing risk across the business. Why wouldn’t you want to know what’s going wrong? The repercussions could be enormous.
- It encourages and drives planning in a business – Planning, whether strategic or operational is an essential part of sound business management practice. However, many owners and managers get so stuck in the rut of doing that they often neglect to plan for the future. An audit forces you to pause and reflect on the business and pushes for improvement and future planning.
A typical financial audit process
The process of a financial audit is fairly standard, but can be adapted to your business and its specific needs. However, this is what you can expect:
A planning phase – where you plan how data will be collected from the business.
The internal controls phase – where the integrity of critical financial procedures will be assessed.
The testing phase – to check if internal controls are working the way they are expected to and that transactions are recorded appropriately, with the right disclosures in the financial statements.
The reporting phase – which presents an audit opinion and a summary of findings back to the business to use for future planning and process improvement.
PSTM services that could help you with your financial statement audit
PSTM offers a range of accounting, assurance and auditing services that you can make use of for your business. These include financial statement audits, recommending and setting up internal control procedures, financial statement reviews, to name but a few. Let us help you to identify your financial statement audit needs. Visit our website for more information on our offering https://www.pstmco.co.za/our-offering/
