Comprehensive Guide to Financial Statement Audits
Financial Statement Audit
Corresponds to a review by auditors, whose aim is to express an opinion on the fairness of financial statements.
Internal Control Audit
A review conducted by trained professionals on the internal control systems of a company (Environment Control, Accounting System, Proceedings of Control) in order to determine proper operation. While this is presented as a separate definition, it should not be forgotten that this audit is part of the audit of financial statements. (This relationship will be discussed in depth in Knowledge 5).
Audit and Operational Management
Defined as a review by auditors, on all company operations in order to determine the effectiveness and efficiency in achieving corporate objectives and in achieving economy of resources.
Tax Audit
A review conducted by an auditor in relation to tax compliance of a company, in order to minimize the costs associated with taxes and reduce the likelihood of sanctions.
Computer Audit
Any review conducted by competent personnel, conducted on a company’s computer processes in order to determine proper operation, given the overall objectives of the organization.
“The objective of an audit of financial statements by an independent auditor is to express an opinion on the fairness with which they present, in all material respects, the financial position, results of operations and cash flow, in accordance with generally accepted accounting principles. The normal examination of the financial statements is not intended to discover fraud and cannot depend on it for that. In this regard, the auditor must ensure that the management of the entity receiving services understands the nature of the audit objectives, scope and degree of responsibility assumed.”
- Express an opinion (report)
- Reasonableness (detection risk)
- The audit does not guarantee the detection of fraud
“In any audit, the auditor should acquire sufficient understanding of each of the three elements to plan the audit, performing procedures to assess the design of policies and procedures relevant to the audit planning tasks and whether they are operating.” NAGA 39, Section 319, Paragraph 02.
“The auditor uses the knowledge derived from their understanding of the internal control structure and the assessed level of control risk in determining the nature, timing and extent of substantive tests to the assertions in the financial statements.” NAGA 39, Section 319, Paragraph 05
- Each activity performed by the auditor in developing the audit must be a true reflection of what is stated in the planning stage and should be embedded in a global context of obtaining information.
- No activity of the audit should be conducted at random.
- All activities should follow a detailed work plan.
- Understand the organization.
- Consider the appropriate use of human potential.
Preliminary Planning
Preliminary planning is intended to obtain or update general information about the entity and the main substantive and procedural activities, to identify existing conditions globally to execute the audit in compliance with the standards defined for this purpose.
Specific Planning
This phase defines the strategy in the field work. Has an impact on the efficient use of resources and achieving the goals and objectives defined for the audit. It is based initially on information obtained during the preliminary planning.
Internal Control Reviews
Assessment of Internal Control Systems of the company as the first stage of the audit, in order to determine the nature, timing and extent of substantive tests.
The evaluation of internal control arises from the inability to review all operations of the company, requiring the auditor to perform tests and targeted data samples. To determine the exact point of application of the test, the auditor must know the process of creating financial information within the company.
