Understanding Financial Accounting Audits
In financial accounting, an accounting audit is an independent assessment of a company’s financial statements. It is carried out by a competent, independent, and objective person known as an auditor or accountant. The auditor then issues a report based on the audit results.
The Role of Accounting Audits
The accounting audit is a critical and systematic analysis performed by a neutral person or group of the audited system. While there are many kinds of audits, an accounting audit usually refers to the external audit of financial statements. This is an audit performed by a skilled professional on accounting books and records to verify the reasonableness of the information contained within them and whether or not they meet accounting standards.
Accounting audits can be performed on any type of activity. They were born from the need for companies to verify their financial information through an independent service. In large companies, it is common to have an internal audit department. However, many companies specialize in providing audit services and are hired for this purpose.
The Audit Process
The audit of financial statements is the examination of accounting data by an independent auditor. The aim of this review is to establish whether they were prepared in accordance with accounting standards applicable in each country or region.
Once the auditor has completed the necessary processes, they will express an opinion on whether the financial statements logically reflect the financial position of the audited entity. For each analysis, a favorable or unfavorable opinion will be issued by the auditor or public accountant.
The Importance of Auditors
The audit profession is highly sought after, especially in times of economic crisis. Companies are particularly concerned about dissecting their accounts and accounting processes to optimize resources, avoid economic imbalances, and be accountable and transparent. The auditor will verify everything and ensure that there are no inconsistencies or evidence of fraud.
Auditing Beyond Finances
Today, auditing exceeds the financial and accounting field. The complexity, volume, and internationalization of business require a deep knowledge of industries, policies, and markets.
The truth is that the work of the auditor goes beyond simply controlling accounts. Today, their role as an advisor is especially appreciated. They help the company identify deficiencies and errors in the accounts and optimize its entire accounting process.
Auditor Independence
Auditors facilitate the government’s ability to control enterprises and prevent fraudulent acts. Therefore, auditors must be as independent as possible. However, in our society, auditing firms often offer other services. Imagine a company giving a large amount of work to both auditors and lawyers from the same firm. This creates a dependent relationship that could facilitate fraudulent acts between them. That is why the government tries to ensure their independence.
To do their jobs, auditors need to receive the company’s financial statements and verify their truthfulness before making their judgment.
Audit Requirements for Small Businesses
Enterprises that meet all of the following criteria are not required to undergo an audit:
- The net amount of their annual turnover does not exceed 5,700,000 euros.
- The total amount of assets does not exceed 2,850,000 euros.
- The average number of workers during the year does not exceed 50.
Example
Consider a small mobile phone repair shop. The profits are only enough to sustain the entrepreneur and the shop, with a small profit. They wouldn’t be able to afford an audit. Due to the lack of complexity in this business, it is easy for the owner to control the accounts. In conclusion, an audit wouldn’t be productive for a small enterprise.