The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product.
Financial Audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity (including governments), resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically performed by firms of practicing accountants due to the specialist financial reporting knowledge they require”
In the financial world, businesses are mostly set up by people, who are not necessarily the same people who run or take care of them.
Auditing in the financial realm is meant to show evidence of the performance of the manager(s), and assess and evaluate their stewardship as they have been given authority and responsibility to run the business. More importantly, auditing allows other people to cross-check the work you have done to be sure are no errors or misstatements in the financial statements or any data or information that would be used by others to make decisions.
It is always easier to carry one’s mistakes or errors even from the beginning to the end, but once, there is someone competent to cross-check one’s work, mistakes or errors committed would be eliminated or at least minimized. In Financial Literacy Education auditing is as important as it knowing how well to keep one’s house and abode free from destruction and clean from dirt and filth.
We should learn to audit ourselves, before we are being audited in all our financial dealings and we learn to understand the importance of auditing and the importance of the work of an auditor. When we set up our own business and run them ourselves or let other take care of them for us. Auditing could be the secret that will keep your business going on and striving to the test of time all the time.
When you set up your business whether big or small do not compromise on paying a qualified auditor to audit your financial records for you. You need auditing for many good reasons as would be outlined soon
Around 2002 many companies amomg them were Enron and WorldCom collapsed in the USA and other companies in other parts of the world also collapsed because auditing and corporate governance were not applied appropriately and professionally. If auditing was applied as required those collapsed companies would have lived at least a bit longer. Good and competent auditing could therefore help prolong the life of your business and your own financial being, because if you are a shareholder of any listed company whether private or public limited liability company, you need to participate in selecting qualified auditors to exam the financial statements and express their opinions on them. Your share value could be appreciated or increased and become lucrative for potential investors if auditors give a good report of your company.
Auditors have their responsibilities distinct from that of the managers.
I f you are a manager of an organization, do well to carry out your responsibilities accurately and timely for the auditor to be able to do his work and not have difficulties.
When management performs its duties creditably, it reduces the work of the auditor and lower audit fees are paid.
Auditors could be external or internal. Internal auditing if not outsourced would mostly be performed by staff members who are also employees of the organization and they also have their responsibilities assigned to them by superiority authority within.
Big time companies are supposed to have an internal audit department or consider having one. BPP Publishers define Internal Audit as “an independent appraisal function established within an organization to examine and evaluate its activities.”
External auditing in many cases (all cases) are statutory and whether management is happy with the idea of having auditors or not, audit of their stewardship would be carried out annually and copies of the financial statements filed with the Registrar of Companies. The Internal or Inland Revenue Service also gets a copy so they could study it and get back to the organization on tax issues.
There is public misconception about what auditors especially the external auditors come to do in an organization in which they not employees. Auditors are just human beings, who have been asked by the shareholders or owners of the organization to exam the financial statements and express their opinion on them.
Auditors do not go organizations to audit with an aim of finding faults with employees or management. The auditor is a finance professional who carries out his/her work with professional skepticism among other professional attributes such as objectivity, independence, confidentiality and many more and would report anything good or bad he/ she comes across if there is the need to.
It is not the duty of an auditor to prevent, detect and correct misstatements and errors in the financial statements as far as the current auditing standards are concerned, though the auditor’s responsibilities could be extended, these have not been covered yet. Auditors are expected to prepare their audit plan and programme in such a way that all material misstatements in the financial statements could be detected by they, the auditors but should be corrected by management. So if, in doing their routine work the auditor comes across some fraud or an error and he/she could report it and that would not meant the auditor went there with a mind of finding faults with employees or management.
It is hundred percent and the core duty of management to put in good measure to prevent, detect and correct errors committed by employees or if management itself so that the organization could be a going concern to function smoothly.
The expectation gap exists where, what the public expects the auditor to do and what the auditor actually does. The expectation gap could be broken through public education among other potent factors of the current duties of auditors and management.
Importance of auditing:
• Audited financial statements could be used access funds from lenders
• Audited financial statements are filed with the Registrar of companies and all copies sent to all stakeholders that require them.
• Auditing would report if the organization is a going concern
• Auditing helps the organization keep good and accurate financial records
• Auditing keeps employees and management awake and functioning
• Auditing brings trust between shareholders and management
• Auditing allays and addresses the fears of shareholders and all stakeholders
• Auditing could add to the fortunes of the company
When you set up your organization, make sure you have qualified auditors to audit your financial statements for you and the future well being of your organization could be guaranteed.
Auditors can and should be changed when their independence and objectivity are impaired, prejudiced and threatened and when familiarity begins to mar the good works of the auditor they should be changed. Remember, the auditor is paid to do a good work and should be fired where their independence and other professional demeanours are compromised. On the hand, where everything is going well but management thinks they have had a long relationship with their auditors and familiarity begins to breed up, they could also change the auditors.
Auditors are not managers and should never be seen to be executing management functions.
The solidity of sustainable development and environmental friendliness greatly depends on auditing and auditors reporting appropriately.
By Godwin-Xavier Ayeebo
Email: gayeebo@gmail.com
