5 Reasons To Audit Your Financial Statements
August 1st, 2021 / Haroon Juma / Audit Blogs
Internally prepared management accounts are often not relied upon by external parties or are mandated under the company’s articles of association. In addition, management may also want the accounts reviewed by an external party to assess the accuracy of internal accounts. As result an audit is necessary.
A financial audit can be defined as an official evaluation of an organization’s financial statements and is usually conducted by an independent auditor competent and certified by the UAE governing body. They are often performed to show key stakeholders that financial statements are prepared consistently and accurately and conform to the IFRS standards.
The Top 5 Benefits
There are many reasons organization decides to hold a financial audit, but some of the main reasons are highlighted below:
1. Summary of your financial records and position: The most common reason to conduct a financial audit is attesting the financial standing of the company. The auditor will review the financial statements and highlight critical or areas of concern, thus giving organizations an opportunity to correct them. From a key shareholders’ or investor’s standpoint, an independent financial audit of your company adds credibility to your organization. The audit financial statements are prepared and presented with a judgment as to whether the information is accurate and in accordance with IFRS.
2. Investigate and assess risks: One of the main benefits that come out of audit financial statements is discovering risks such as fraudulent activities. Financial auditing is a great way for organizations to catch any discrepancies in accounts and investigate them further.
3. Evaluating whether the business is viable – Going Concern: When an organization or company conducts a financial audit, it is the duty of the auditor to evaluate and include the going concern qualification in their opinion. This opinion is crucial in confirming the business is capable of continuing as a going concern to generating revenue and profits.
4. Identify ways to improve business: Auditors offer a unique perspective with insight from multiple engagements. They should apply this experience make recommendations for process improvements in the audit process.
5. Funding and Investments: With audited financial statements, a company may be better prepared for funding. Audit financial statements give the impression that the business is credible and authentic. This in turn increases the chances of the organization receiving investments, adding credibility to a potential investor.
Why Are Audits Necessary?
Businesses may be required to present their audited accounts to government entities, banks, investors, or management when requested. As a business owner, you need to make sure that all audited reports are available and conform to IFRS standards.
The key to conducting an audit is effective planning. An audit will progress efficiently if the business is prepared and this ultimately affects the quality of the final report. The planning should include:
- Appointing a certified and recognized independent auditor
- Complying with requests for documents. This includes but is not limited to the documentation required under compliance such as shareholding structure, legal documents to verify the authenticity of the organization
- Providing financial statements prepared according to the IFRS standards
- Supporting audit tests and transactional checks to verify the legitimacy of sample transactions under review.
It is important to keep in mind that failing to provide the necessary documents can lead to the auditor resigning, including an EOM (Emphasis of Matter) paragraph in the report or giving a disclaimer of opinion. These materially affect the reliability of the report to an external party.
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