Audits of Financial Statements

Audit - Highest Level of Assurance

An audit provides the highest level of assurance. An audit is a methodical review and objective examination of the financial statements, including the verification of specific information as determined by the auditor or as established by general practice.

Audit work includes a review of internal controls, testing of selected transactions, and communication with third parties. Based on the findings, a report is issued on whether the financial statements are fairly stated and free of material misstatements.

An Audit allows you to...

• Satisfy stakeholders such as employees, customers, suppliers and pressure groups, as well as the investing community, as to the credibility of published information.
   
• Facilitate the payment of corporate tax, goods and services tax, and other taxes on-time and accurately, thereby avoiding interest, penalties, and investigations.
   
• Comply with banking covenants.
   
• Help deter and detect material fraud and error.
   
• Facilitate the purchase and sale of businesses.
   

Here's what you get...

You get the highest level of assurance because audit procedures go outside your company to obtain additional information and verify the financial statements. Typically, there are written communication with:

• Your customers, to check outstanding receivable balances,
• Your banks, to confirm cash or debt balances and terms,
• Your vendors, to verify outstanding payable balances, and
• Your attorneys, for information on pending or threatened legal action.
• As well as many other third parties

Other procedures based on materiality levels include performing physical inspections and observing your inventory counting methods and performing test counts. Other procedures could include documenting and testing each operating cycle, including sales and cash receipts, expenses and cash disbursements, and payroll. The audit workpapers prepared will include a detailed work program to document the examinations and testing performed, as well as the client's supporting work papers.

Audits Not Just for Public Entities

All public companies are required to have an annual audit, but many nonpublic entities must undergo an annual audit as well. These include local governments, not-for-profit agencies and other organizations receiving government grants.

Moreover, it will provide some outside assurance to financial institutions that require audits of nonpublic companies based on the financing amount and/or the bank's assessment of the company's risk. Also, companies with absentee ownership (such as those owned by investment firms including venture and private equity groups, or individuals who no longer run the business) may require audits as checks of their management teams.