What is the importance of IT auditing in the context of financial statements audit?

Abstract

The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. The objective of an audit of financial statements is to enable an auditor to express an opinion as to whether the financial statements are prepared, in all material respects, in accordance with International Financial Reporting Standards or another identified financial reporting framework. The auditor's opinion is expressed in by using the phrase 'give a true and fair view' or 'present fairly, in all material respects'. The auditor and the client's management have separate and distinct responsibilities. The auditor is responsible for forming and expressing an opinion on the financial statements. The client's management, on the other hand, bears responsibility for preparing and presenting the financial statements. Management's responsibilities are not relieved by the fact that the statements are audited. An auditor must comply with general principles of an audit. These require an auditor to: 1) comply with the 'Code of Ethics for Professional Accountants' issued by the IFAC (or a national Code of Ethics, where appropriate); 2) conduct an audit in accordance with International Standards on Auditing (ISAs) (where applicable); and 3) plan and perform the audit with an attitude of professional skepticism, recognizing that circumstances may exist that cause the financial statements to be materially misstated.

Citation

“World Bank. 2011. Fundamentals of Financial Statements Audit. Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/13023 License: CC BY 3.0 IGO.”

Collection(s)

This item appears in the following Collection(s)

• Other Financial Accountability Study
  

Why you might need an audit of your financial statements

There are many benefits to having an audit of a Company’s financial statements especially for privately held businesses with revenue over $1,000,000.  An audit provides the highest level of assurance that a Company’s financial statements are fairly stated (in all material respects).  This assurance is provided by independent third party.  Audited financial statements in accordance with accounting principles generally accepted in the United States of America include accruals such as accounts receivable and accrued liabilities not included in certain tax basis financial statements. This gives interested parties a better idea of a Company’s financial position.

Here are a few reasons business owners and managers come to ShindelRock for an audit of their financial statements:

• Required disclosures provide detail and insight into a Company’s financial condition that may not be apparent from a balance sheet and income statement alone.  Provides clarity to all stakeholders, board members or other users.
• Can help management and other parties meet their financial reporting responsibilities, especially knowing an independent party will be reviewing and testing the financial records.
• An auditor must develop an understanding of an organization’s internal controls and access risk and thus may be able to identify control weaknesses, provide guidance on internal control improvements and recommend ways to reduce risk.
• Auditors provide a unique perspective on the business and may be able to make process improvement and financial statement presentation recommendations.
• A company may be better prepared to seek financing with audited financial statements.
• Audited financial statements add credibility if a potential buyer requests financial statements.
• A company may be better positioned to take the company public; if that is an option being considered, as internal control and financial issues would already be identified.
• An audit increases the value and credibility of the financial statements produced by management, thus increasing user confidence in the financial statement,
• Company can use the auditor’s report to promote accountability for the managers and employees in the company. Individual employees may focus more on dependable accounting and management if they know that the company is regularly audited.

Of course there are many instances in which audited financial statements are required such as: certain debt requirements, board requirements and a long list of regulatory requirements. The above benefits of having an audit apply to these companies too.

Another option for companies not required to have an audit is to obtain reviewed financial statements.   We detail the difference between a review, compilation, and an audit here.

If you think your business may require an audit or would like the peace of mind that a financial statement audit brings, contact a member of the ShindelRock audit team.

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