Overview of a Financial Statement Audit
How a Financial Statement Audit Helps You Make More Money
A business’ financial statement shows you where the money is coming from. All good investors don’t believe in a financial statement, that’s why they want to check the financial statement audits. To ensure the legitimacy and profits of a business. If you want to prove 100% the legitimacy of your business and show prospective investors where the money comes from, you need your financial reporting to be on point.
Main Goal of a Financial Statement Audit
A financial statement audit is not to find fraud, find out if a company is stealing or have anything to do with the company’s finances for that matter. For that, you’ll need forensic accounting. A financial statement audit ensures your company follows the generally accepted accounting principles (GAAP).
We Know How to Overcome Inherent Limitations
Although inherent limitations cannot be completely eliminated, meaning nobody can provide absolute assurance. There are certain techniques we follow to minimize the errors as much as possible. We use proper sampling techniques.
We apply several audit procedures in one area to gather enough audit evidence to increase the level of assurance. In case we can’t get conclusive evidence, we confirm and double-check the persuasive evidence by using different audit procedures.
Our Personal Judgement
We use our knowledge of accounting principles and experience from audit training, in an ethical manner, to make well-thought decisions for each circumstance.
We perform consistent analyses on the problem, the accounting standards applicable in the case, evidence gathered, and possible alternatives. Always following the generally accepted accounting principles (GAAP).
Our Audit Procedures
We choose our analytical procedures from AEIOU: Analytical procedures, Enquiry, and confirmation directly from a third party, Inspection of records and assets, Observation, recalcUlation, and reperformance.
Then we determine from the following assertions to see which one needs to be tested: rights and obligations, classification, completeness, cutoff, occurrence, existence, and valuation.
What is Audit Evidence
We measure our sufficiency after analyzing the risk of material misstatement and/or control (as risk increases so do the quantity of evidence). And after analyzing the quality of the evidence we obtained (as quality increases, the need for more evidence decreases).
However, if we gathered more of one type of evidence and the quality is poor, we’ll need other types of evidence because quantity won’t compensate for quality. Read about types of evidence here.
Audit Sampling
We use audit sampling when the population sizes are too large to analyze completely so we need to analyze small portions. The population referring to the documents audited.
We use block, haphazard, personal, random, stratified, and systematic sampling. Each sampling technique is different and unique, used for different circumstances and different industries.
Management Representation Letter
After completing the audit, we signed a representation letter. The management team, CEO, and senior accountant of the company and the auditors sign the letter. The letter is part of the audit evidence.
The letter states any possible mistake done by management that led to an unfair and inaccurate representation of the financial results of the company.