What is Financial Audit?
It is an evaluation of the principal economic and accounting operations reported in the financial statements at a fixed date prepared under accounting standards such as GAAP (Generally Accepted Accounting Principle), especially for U.S. public companies, to provide a complete and comprehensive opinion of the financial records.
Financial Auditing, also known as External Auditing.
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Types of financial audits
There are no classifications within the financial audit, but a type of business audit that determines that the financial statements present a true and fair view.
Definition of Financial Audit
The financial audit is an evaluation of the main economic transactions presented in the accounting accounts at a given date, prepared under an accounting framework (International Financial Reporting Standards – IFRS), to provide an opinion on the reasonableness of the financial statements as a whole.
Purpose of the Financial Audit
The general objective of the financial audit is to provide confidence to users (shareholders, customers, suppliers, among others) in their financial statements. This is achieved by expressing an opinion on whether the financial statements have been prepared under the accounting framework, considering the following:
- The auditor must be convinced, under the auditing standards, that the financial statements as a whole are free from material misstatement due to fraud or error.
- If there are material misstatements, the auditor should report them to management to correct the financial statements so that these are fairly presented.
What is the Financial Audit scope?
The Financial Audit scope includes performing audit procedures of internal and accounting control under standards there of to achieve the targeted objectives.
Phases of a Financial Audit
The financial auditor’s review is performed through various phases of a financial audit based on International Standards on Auditing (ISAs), such as:
- To plan the financial audit process to be executed effectively by obtaining knowledge of the business, assessing the financial statement risks, and preparing audit programs.
- To execute the audit program procedures through internal control tests and substantive tests so that the financial auditor concludes whether the financial statements, as a whole, are fairly presented through professional judgment.
- To report the findings identified on accounting, tax, and/or legal aspects during the audit to the Management to get a timely correction.
It is essential to consider that the methodology in a financial audit must be based on the International Standards on Auditing – ISA.
Why is Financial Audit necessary for entities to perform financial audits?
The financial audit of financial statements provides an insight into the accounting processes for companies, determines whether these can be prepared, and financial statements elaborated (statement of financial position, comprehensive income, changes in equity, and cash flow) under the applied accounting framework.
A financial audit displays whether accounting processes that do not have basic controls and, therefore, could generate voluntary or involuntary errors, resulting in erroneous decision making by Management.
It primarily aims to provide reasonable assurance to users on the financial statements, making companies rely on the following:
- General Shareholders’ Meeting Shareholders’ Meeting
- To participate in biddings with state and/or private entities.
- To request loans with financial entities
- Spin-offs and takeovers
- Transfers of shares
- Due diligence
- Liquidation processes
Conclusion of the Financial Audit
At the end of the audit procedures and subsequent reporting of the main findings identified, the auditor’s certificate is prepared under GAAP and FASB (Financial Accounting Standards Board), in which the independent auditor’s opinion is expressed, which may be an unqualified or a qualified opinion, or a disclaimer of opinion.
Likewise, an internal control letter of the financial audit is prepared, in which the control observations related to accounting, tax, and/or legal aspects are detailed so that the Management can execute the improvement recommendations in the short term.
At VAG GLOBAL, we have excellent professionals and experts that help us with the quality control of the financial statement audit. We will assist you with any consultation or quotation you may require for your company.
At VAG GLOBAL, we have excellent professionals and experts that help us with the quality control of the financial statement audit. We will assist you with any consultation or quotation you may require for your company.