Financial accounting involves the preparation, documentation and interpretation of financial data. It is also concerned with making sure that these data are used and interpreted correctly by different departments within a firm in order to ensure that they give accurate representation of the company’s financial position. As a result of the importance of the financial aspect of a firm, auditing becomes a vital process for a business organization. Companies also have the option of hiring an independent auditor in order to conduct a thorough examination of the organization’s financial data and accounts.
As a result of the importance of auditing, it is advisable for all companies to have an auditor in place in order to provide an unbiased view of the financial matters. There are many different types of audits that can be carried out by an auditor, all of which are based on different parameters.
A basic type of audit is the financial statement audit, where an auditor looks at the financial data of the business in order to assess its profitability and determine its future financial position. A number of different items are evaluated and the results of each are analyzed to find the factors which are likely to affect the future financial performance of the company.
An internal control audit is a slightly more comprehensive type of audit that is carried out by an auditor in order to see if the control measures employed by the company are adequate to ensure that only appropriate information is being given to the auditor. Control measures consist of controlling or recording information in the proper way, controlling or reporting information to a third party, controlling or reporting information in a timely fashion and maintaining adequate books of account.
Other types of audits include the internal audit process and the external audit process. The former involves the examination of a business organization’s internal control system, which controls the organization from information leakage or misuse, whereas the latter involves a review of the business environment to check for fraud and other fraud in terms of access to internal company information. Auditors also conduct an outside audit to check the financial records of a company and report on them as part of the internal audit. In the case of external audits, it is the auditor’s responsibility to carry out this external audit.
Some important aspects of the auditing process involve testing and verification of systems to see if they are still in place, and whether they are still effective at providing the necessary information. When the test results show that the systems are still efficient, the auditor will make recommendations to the management.
The audit is usually conducted by the accountant who is responsible for the management of the company’s records, although it could be done by a separate person who is not part of the accounting staff. The process of auditing normally involves several steps, but there are times when the process is simplified.
Business owners are required to pay a fixed amount to the auditor and this is referred to as the audit fee. The audit fee is normally paid in order to cover costs associated with the audit, and other expenses, which include the costs of paying the auditor and other personnel expenses and travel expenses.
General nature of the audit. When the audit is for the purpose of detecting fraud, it should be carried out on a routine basis and does not necessarily need to be repeated throughout the company’s life.
The process of auditing is very important for the company, and the process must be carried out properly by a competent, professional organization. It is best to conduct an audit regularly and not wait until problems arise before doing so.