The audit It is a technique adopted by both the public and private sectors to examine the management or financial statements of entities. As you can see, it can be applied to any organization, regardless of the activity, sector or size of the company.
It is for this reason that we have prepared for you, this article that will allow you to learn more about this topic, that is, at the end of your reading you will be able to understand what the audit is, the types, its objectives, characteristics and who performs them.
What is Audit?
The Audit It is an activity of an intellectual nature that is carried out based on a series of techniques, principles and rules to carry out the review of the records, processes and tasks of the company in a specified period of time.
It should be noted that this verification is carried out with the purpose of knowing if the objectives of the company have been achieved and if the legal or internal regulations of the organization are being complied with.
For example, in Mexico audits must be carried out in accordance with the International Auditing Standards, known by the acronym NIA. If you want to know more about them, follow the following link.
It should be noted that currently the vast majority of Latin American countries and the world have adopted these standards. Through its adoption, it has been possible to unify the reports, methods and techniques applied to reviews of this nature.
The types of Audit they can be diverse and there are several classification criteria. In the next few lines we want to show you a varied range of them, so that you can understand that it is very wide. Here we present two criteria: According to its origin and by the area where it will be carried out.
Regarding its origin, we can find the internal audits and external audits. The first of them are carried out by the company’s staff to evaluate the internal control of the organization (accounting processes, safeguarding its assets, administrative processes)
For its part, external audit It is called that way because those who are in charge of carrying it out are people outside or independent of the company. That is, they do not have a working relationship with the entity. Its purpose may be to examine the financial statements or review some administrative process.
With regard to the area where it is to be carried out, its purpose can be diverse. Below we mention the audits more common:
- Financial or accounting.
- Contract administration.
- Cash or cash.
Depending on the class of Audit, your goals may vary. However, below we list the general purposes for which a audit:
- Obtain a value judgment on the matter to be evaluated.
- Examine the effectiveness and efficiency of the company
- Evaluate internal control systems.
- Corroborate the existence of material errors or omissions in the financial statements.
- Guarantee the reliability of the figures and information presented in the financial reports.
- Check compliance with the legal and sub-legal regulations of the organization.
- Verify compliance with accounting standards.
- Support management in decision making.
- Determine if the company’s systems and procedures are reliable.
- Contribute to the investigative processes.
- Detect and prevent fraud.
It should be noted that the activity of auditors in the past was seen as inquisitive and always looking for errors or omissions. With the establishment of new standards and work systems, that vision has been changing over time. This means providing greater support to the company.
In this regard, the auditor can also advise the organization so that it can improve or strengthen its internal control. At the end of its review, in general, the firm of auditors, apart from their opinion, issues a Memorandum of observations and recommendations.
It should be noted that this document is addressed to Management and there you will be able to observe in detail the weaknesses detected in the verification carried out. In addition, recommendations to improve the management of the company are included.
Within the characteristics of the audits, which will allow a better result to be achieved to strengthen the company and notably improve its controls, are:
- It is analytical. It must be done critically when carrying out its execution.
- It must be objective and impartial. To do this, you should avoid making personal judgments or without having supporting evidence in this regard.
- The examiners must not enter into conflict of interest regarding the audited event. For example, if the auditor is a relative of the owner of the company, he should refrain from conducting the review.
- Its purpose and duration (scope) must be delimited
- You have to look for opportunities for improvement in the observed facts, without being inquisitive or accusing people.
- Follow a sequential process, ranging from planning to issuing the opinion.
- The information to be disclosed must contribute to improving the controls of the company, in order to achieve its objectives.
- Technical criteria must be applied for conducting the tests and for issuing an opinion.
- Show timely and clear information that facilitates decision making.
- It must disclose facts that are considered relevant and may affect the company significantly.
- Provide protection to the company and its shareholders.
- Maintain the reliability of the organization’s information.
- It must delimit the responsibilities of management and auditors.
- It will show the accounting and auditing standards applied.
- The report must inspire confidence, certainty and reliability.
- The documents that are generated (working papers) must be properly protected.
It is important that you know the stages to carry out a Audit. They carry a rigorous, but productive planning process and end with the delivery of a report that reflects the results obtained. Next, we explain those phases: planification, execution, reporting and monitoring.
In this phase of the Audit The auditor tries to understand the processes of the company, to be able to elaborate his revision proposal, previous agreement with the management. Usually at this stage, the preliminary review of the internal control (internal rules and procedures, approval levels, accounting and financial policies, among others).
After the examiners have this information, they can estimate the man hours that will be needed and prepare the budget to be presented to the company’s management for approval. In addition, the Audit Program.
This program is a document where the auditors establish the methodology to carry out the review, that is, they define and describe the audit tests, the objective pursued, the execution time and the person who will carry it out. In addition, the sample is determined by applying statistical techniques.
Once Management approves the audit, it will start at the established times, trying to understand the company’s processes.
At this stage of the Audit, what was established in the Audit Program, that is, the tests are run. The results that are obtained will be reflected in the work papers along with the documents that demonstrate what you have obtained.
It is important to note that the results achieved in each test must be discussed with the audited persons. This information will be very useful to prepare the corresponding report.
Preparation of the report or opinion.
Once the review of the Audit has been completed, the auditors should present the results obtained by preparing a report or opinion. In it, a favorable opinion will be issued, if in general terms the operations of the company were carried out in accordance with the rules.
Otherwise, an unfavorable opinion will be issued and the finding found. For this purpose, its effect (materiality), the rule that was transgressed and the causes that originated that situation will be revealed.
In this phase of the Audit, the auditor carries out a follow-up after the presentation of the report. The above is intended to verify if the company has corrected the errors found and has followed the suggested recommendations.
Who Performs the Audits?
The audits They are carried out by qualified personnel, that is, by those people who have carried out formal studies in different areas of knowledge. It should be noted that this kind of verifications are usually carried out by multidisciplinary teams if their complexity requires it.
For example, the cultivation process of a plantation is being reviewed. In this case, it will be necessary to hire a agricultural engineer or a biologist and if the administrative processes are also being reviewed, a specialist in the area will assist the audit.
On the other hand, if it is a audit of financial statements, the public accountants They are the ones who will be empowered to certify the figures contained therein. To do this, accounting professionals in addition to using the International Auditing Standards, to express their opinion, will be based on the Financial Reporting Standards (NIF)
Performing periodic audits strengthens the internal control of the company!
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