- May 4, 2022
- Posted by: Manuels Effe
- Categories: Finance & accounting, Insight
Systematic, unequivocal, and always fact-finding, an Audit in accounting is the examination and verification of an entity’s financial records. It ensures that financial information is represented fairly, and accurately and that financial statements are prepared in accordance with accounting standards.
While financial statements are prepared internally by management, utilizing relevant accounting standards, such as the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP), they are developed to provide useful information to shareholders, creditors, and government entities, customers, suppliers, and partners.
Financial statements capture the operating, investing, and financing activities of a company through various recorded transactions.
However, because financial statements are developed internally, there is always a high risk of fraudulent behavior by the preparers.
Without proper regulations and standards, preparers most often misrepresent their financial positions to make them look more profitable or successful than they are actually.
Auditing has become crucial to ensuring that companies represent their financial position fairly and accurately and in accordance with accounting standards and its objective of being the examination and evaluation of financial statements.
Nature of Audits
Audits are in three main categories – the internal audits, which are performed by the employees of an organization. The reports are not distributed outside the company as they are prepared for the use of the management and other internal stakeholders.
Internal audits are used to improve decision-making within a company by providing managers with actionable items to improve internal controls. They also ensure compliance with laws and regulations and maintain timely, fair, and accurate financial reporting.
Management teams also use them to identify flaws or inefficiencies within a company before external auditors are brought in to review the financial statements.
The second is the external audit. They are usually carried out by external bodies and third parties and provide unbiased opinions that are usually beyond internal auditors. External financial audits are used to determine any material misstatements or errors in a company’s financial statement.
When an auditor provides an unqualified opinion, if you like, a clean opinion, it reflects that the auditor gives the confidence that the financial statements are presented with accuracy and completeness. External audits are important because it allows various stakeholders to confidently make decisions surrounding the company being audited.
The key difference between an external auditor and an internal auditor is that an external auditor is independent, meaning that he is able to provide a more unbiased opinion than an internal auditor, whose independence is likely to be compromised, realizing the employer-employee relationship between him and the organization.
There are many well-established accounting firms such as the SSAC Advisory and Professionals, a unit of the famous S.S Afemikhe & Co, a firm of Chartered Accountants, that has become well acknowledged in Nigeria and beyond for external audits for all grades of organizations- SMEs, blue chips, multinationals, multilateral and government ministries, departments and agencies(MDs).
The third leg is government audits. Government audits are performed to ensure that financial statements are accurately prepared so that they do not misrepresent the amount of taxable income of a company. The Audit Department is the legally established unit that audits all government ministries and agencies in Nigeria. State Governments all respectively own their Audit Departments that carry out the same responsibility on their ministries, departments, and local governments.
External audits are, however, permitted for agencies and departments, excluding ministries.
Assurance services assure that financial statements are accurate and follow policies, regulations, and are aided by examples.
Besides, trying to determine what an auditor does makes you think about assurance services, being audit activities that provide an independent, objective assessment of financial statements or compliance efforts. These audits assure management, Boards, and regulators that financial statements are accurate and operations are done in accordance with applicable policies and regulations. The compliance, regulatory, and financial statement audits are all considered assurance services. Other audit services, such as consulting and advisory audits, very important audit activities, are not part of it.
But inclusive again of assurance services are regulatory and compliance audits, known to serve the same purpose, ensuring that an organization’s operations follow set guidelines and rules- legislatively or by the policy. Regulatory audits on the other hand test compliance with laws and regulations, but compliance audits test against policies.
However, the most common example of assurance services is financial statement audits. It’s mandatory in some countries, the US for example, that companies that are publicly traded on the stock exchange have their quarterly and annual financial statements audited by an independent external public accounting firm.
In auditing financial statements, the accounting firm doing the audit ensures that every number on the statements is accurate, and transactions making up each account are tested. To validate a sales figure, you make sure that sales totaling the amount recorded actually occurred, starting with the income statement report of the amount recorded as sold and indicating the point of sale. Supporting documents enable you to break down the sales location by location, product, and perhaps, with some other categorizations.
Assurance indeed is the intended conclusion by an assurance practitioner to increase the confidence that users can place in a given subject matter. An audit is a form of an assurance engagement, which provides an opinion that gives reasonable assurance on a financial report. An auditor is an assurance practitioner, who conducts an audit. This means that an auditor’s report provides a conclusion that increases the confidence that users can place in a company’s financial report. There are different levels of assurance, which result in different types of conclusions, depending on the type of work the assurance practitioner is performing.
This is an audit of a financial report as well as the gathering of sufficient appropriate audit evidence, relying on an assessment of risk and materiality to support the auditor’s opinion.
Commonly referred to as Positive Assurance, the financial report, which is normally in accordance with the Companies Allied Act, also gives a true and fair report of the company’s financial position at year-end and of its performance for the year in compliance with Accounting Standards and relevant Regulations.
Limited assurance, on the other hand, is a review of a half-year financial report. It’s primarily inquiries and analytical reviews with less detailed procedures, based on an assessment of risk and materiality to support the auditor’s conclusion.
When It’s ‘Reasonable Assurance
“Reasonable assurance” remains a term of art in the audit profession, not well-understood. When an audit report attests with reasonable assurance that the financial reporting or internal controls are reliable, it’s giving absolute assurance over them. But if that happens at all, it’s never absolutely certain.
Accountants, auditors, clients, and even regulators hardly ever assert with absolute certainty that an event will or will not occur even when it has already occurred.
The operative word in the term is “reasonable.” Auditors do not provide absolute assurance. Absolutes are not attainable, considering such factors as the desire for professional judgment, the use of testing, the inherent limitations of internal control, the reliance on accounting on estimates, and the fact that audit evidence is generally persuasive rather than conclusive.
The term “reasonable assurance” leaves much to the imagination and shaky ground for critics of audit reports. The accounting and audit professions contend that an audit conducted in accordance with Generally Accepted Auditing Standards (GAAS) provides reasonable assurance, but not “absolute” assurance, that the assessed financial statements are free of material misstatements.
The audit profession has made an effort to close the expectation gap between the levels of assurance that readers presume an audit report can deliver, and the level of assurance that it actually provides. It has updated auditing standards to provide more explicit guidance and, in conjunction with regulators, provided more active oversight and dispensed more disciplinary measures for issuing erroneous reports.
Auditors in all reasonableness are required to obtain reasonable assurance whether financial statements give a true and fair view of an organization’s financial position.
In others words, auditors are to be reasonably sure that financial statements are free from material misstatements. The concept of reasonable assurance has historically applied to the issuance of financial statements, but more recently it has been used in assessing internal controls and the responsibility for detecting fraud.
The exercise, however, of due professional care allows the auditor to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud, or whether any material weaknesses exist as of the date of management’s assessment. Absolute assurance is not attainable because of the nature of audit evidence and the characteristics of fraud. Although not absolute assurance, reasonable assurance is a high level of assurance.
The concept of reasonable assurance is significant because it should guide the assessments of the validity and reliability of the financial statements by external auditors, as well as the effectiveness of internal control by management and internal audit. Consequently, it comes into play in determining the auditor’s negligence and professional liability.
In all, auditors are unable to obtain absolute assurance not because they conduct engagements with insufficient care, but because limitations inherent in the process restrict the ability to guarantee absolute assurance
Significance of Audit & Assurance
Audit and assurances have become the main survival mechanisms of business entities.
Audits have the quality of improving organizational efficiency and profitability as it aids management to better understanding their financial reporting systems. Organizational risks are studied better and controls are evaluated.
The essence of Audits and Reviews
Shareholders of listed companies are usually quite different from those managing and governing the companies they own. They need reliable and independent sources of financial information on which to assess the company, the performance of management, and those charged with governance. It is the same for other stakeholders of companies, such as creditors, lenders, employees, analysts, prospective shareholders, regulators, governments, and communities. Audits and reviews enhance the credibility of the information contained within the financial report, comprising the financial statements; notes to the financial statements; and the directors’ declaration about the financial statements and notes.
This information enables shareholders and other stakeholders to make assessments and decisions, such as investing, divesting, lending, or contracting with the company with confidence and on a consistent basis.
An audit of a listed company’s financial report is required annually, as well as a review of a listed company’s half-year financial report.
Needed Understanding in Financial Reports
Auditors consider the information needs of users of financial reports when determining what will be important (materials) to the users driving what the auditor will focus on. It is reasonable for the auditor to assume that users of the financial report:
- a) Have a reasonable knowledge of business economic activities and accounting, as well as a willingness to study the information in the financial report with reasonable diligence;
- b) Understand that the financial report is prepared, presented, and audited to levels of materiality;
- c) Recognise the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment, and the consideration of future events; and
- d) Make reasonable economic decisions on the basis of the information in the financial statements.
SSAC in it All
Irrespective of why you need an audit- regulatory compliance, a loan agreement, trustee or shareholder requirements, a merger, or other reasons, SSAC Advisory and Professional’s audit and assurance services team can meet your needs thoroughly, reliably, and responsibly, having been well endowed with the qualities.
They stay ahead of the financial and compliance issues that impact your industry, help you through the complexities of reporting requirements and recommend effective internal controls.
It has innovated the auditing process for efficiency to streamline and improve the overall experience of its clients and ensure that they get the best as numerous testimonials of it from federal MDAs and the oil and gas sector as a whole would testify.
Aside from the audit and accounting services, it has such additional assurance services as preparation of financial statements, compilations of financial statements, review of financial statements, Agreed-Upon Procedures, and examinations.
Along with that are management consulting, ranging from accounting policies and procedures, interim controllerships, Indirect Cost Allocation Plans, Lease vs. Buy Analysis, Long-range Financial Projections, New Accounting Principles and Implementation, Operations Analysis, Outsourcing, and Privatisation Analysis. It complements that with training services, including Audit, Accounting and Finance Concerns, Board Member Training, and Governance.
SSAC Advisory and Professionals is marvelous. The company’s audit approach is applied consistently across the network through the use of its Audit Manual, a core technical document that complies fully with international auditing standards.
Its team meets with a client before work commences and asks questions in order to really get under the skin of the business and fully understand it. As you have seen from its listed areas of training above, it offers training programs to support your Accounting, Audit, and Assurance needs.
In its quest to see that paperless accounting takes hold, SSAC is fiercely driving cloud accounting, promoting accounting solutions, including the mystifying BMAC Accounting software accessible remotely from anywhere in the world. Enterprises in all sectors are now truly moving toward cloud-based services for their benefits.
SSAC helps businesses to develop cloud-based accounting frameworks to optimize their accounting processes and provide them with the best fit for their business solutions.
Its audit and assurance services satisfy the primary objective of expressing opinions on the fair presentation of the annual financial statements of companies and ensuring compliance with relevant regulatory provisions. In addition, they provide comfort for Directors and Investors on specific projects and ventures at time. To ensure effective and efficient audits, it typically directs its attention at financial statement components and applicable assertions, which have a high risk of material misstatement.
The company further provides independent and specialist support in Statutory Audit and Financial Advisory services to public and private organizations, providing additional value creation services borne from the combination of strong financial accounting skills and years of experience in the provision of statutory audits, systems audits, evaluation and development of accounting system and critical assessment of systems and processes. It as well provides a holistic service to all audit clients, focusing on financial management and organizational performance improvement to add value to their systems.
Its in-house methodology along with its automated system with which it approaches its assignments makes it work perfectly and its reports acceptable as to international best practices.
SSAC’s accounting services range from the recording of financial transactions, and maintenance of books of records to the preparation of relevant financial reports for clients. It delivers services by providing clients with resources resident in the client’s office or by accessing required information in its offices and working offsite.
Its internal audit is on a Risk-based approach. It reviews a company’s activities and identifies potential threats to its health and profitability, and then provides suggestions to stem the risks associated with the threats and minimize costs in the long run.
With the Financial Reporting Council of Nigeria mandating all companies in Nigeria to convert from Nigeria Generally Accepted Accounting Principles (NGAAP) to the International Financial Reporting System (IFRS), SSAC is carrying out a detailed conversion exercise that entails; a review of the chart of accounts and general ledger identifying areas that could be affected by their conversion to IFRS; ascertain whether the EDP method is IFRS compliant and would be useful for subsequent IFRS reporting by the company; train users, re-structure the general ledger and charts of accounts; review all account balances and raise necessary journals to implement the IFRS impact on them.
This is aside from attending to sub-system issues, relating to configuration and data capture, and going into agreements on post-implementation reviews with clients. SSAC provides financial management advice on operational and financing structures based on its well-known thorough understanding of costing and management accounting systems.
The firm adopts a more robust approach in the conduct of Due Diligence assignments, including identifying appropriate operational and financing structures, determining funding requirements, providing documented financial analysis and business plans, and facilitating financing for projects.
For years into model audit, the task of conducting due diligence on a financial model, SSAC combines that with financial modeling, building abstract representations ( models) of financial decision-making situations and eventually providing Model Audit Reports that facilitate Clients’ ability to make sound financial decisions.
Long a master of the game, it’s today a global concern in statutory audit, non-statutory audit, value-for-money audit, systems review, compliance with procedures, and then, international Accounting Standards and IFRS readiness and conversion.
Businesses must at all times be aware of their business risks and be sure that they are effectively managed. A business needs faith in its underlying systems and controls and is always sure that it’s compliant with key legal requirements.
Carrying out an audit gives a thorough understanding of your business and its strategic direction. SSAC’s audit gives you peace of mind and regular contact to deal with. Its dedicated teams painstakingly build their audits and counsels in consultation with clients.
SSAC is an assurance, you need it for effectiveness, efficiency, profitability, growth, and perfection.