Basics of Auditing

You have heard of audits and auditing before but have probably only heard of them and not quite understood what happens in an audit, what an auditor does its importance or risks that occur if you don’t audit your business. We are going to break it down in hopes that it all becomes clearer for you and you are more comfortable with the term and processes next time you audit your business.

What is Auditing?

Auditing refers to the procedure or steps that an auditor (can be more than one) takes to acquire information that relates to the quality of your business’ financial statements that you provide. This gives the auditor to establish a viewpoint on the business’ financial statements, that is, whether your business is displaying the fair and true financial position and overall condition of your business. After the auditor has identified the objectives of the audit, the scope and approach to be taken, and the risks that are involved, they are to identify and use the audit procedures to be taken. This process is done during the planning stage.

Types of Audit Procedures

1. Substantive Audit Procedures

In this audit procedure, the auditor carries out auditing processes, steps, or tests that create conclusive evidence of the books, assets, liabilities, and statements being that of accurate existence, right valuation, and competence. To do this, the auditor collects sufficient evidence of audit so that when another auditor implements the exact procedure to the same documents, they will draw the same conclusion. Usually, an auditor uses this type of audit when they think there is a high risk in the audit sector.

2. Analytical Audit Procedures

With this procedure, the auditor studies, evaluates, or tests the financial statement, books, accounts using and analysis that shows reasonability between the various financial information and the non-financial information. The auditor, therefore, checks the current financials against previous audit results to see if they make sense. As the audits continue, the auditor can use audits from different years to compare as audit evidence.

Benefits of Auditing

The benefits of auditing are as follows:

1. Auditing allows the auditor to attain considerable, conclusive evidence of audit so they can establish an opinion on the financial statements.
2. When using specified auditing procedures allows the auditor and business to identify the time and efforts required to deploy to have a look at the evidence of the audit.
3. When auditors find pre-established, necessary steps to comply with or follow for auditing, it makes the work easier.
4. Internal auditing helps external auditors to plan the areas in which they should add focus and also help determine what type of audit procedure to apply.

Restrictions to Auditing

1. Human blunders

Auditors are still human, and so they are not perfect. They, however, have several methods of assuring that they reduce blunders to a minimum. At Kensea Consultants, we do this by having different auditors review the audit as a method to eliminate errors.

2. Unclear Judgement

When preparing financial statements, there may be differences in the judgment on how to prepare them from the managers running the business, resulting in difficulty for the auditor to determine the true position of the company.

3. Unclear Accounting Instructions

Even though there are clear procedures for auditors on how to audit there are cases where they are not set out for the auditor, resulting in the auditor having to make assumptions.

4. Management Fraud

This is a very real issue in businesses whereby high-level management or employees have conspired with one another to commit fraud. As careful as the auditor may be, sometimes they may not notice the fraud being committed in the financial information provided.

Conclusion

Auditing is a crucial part of assuring that your business grows and follows the correct procedures for filing its financial information. It allows you to identify where you are as a business and what could be done better and can catch out any unclear injections and leakages within your business, as well as any mysterious activities in your financial information.