Internally prepared information and/or financial statements of a company by management cannot to be relied on by external parties. In order to assess and to prove that financial statements represent the correct financial situation of a company, a company can request an auditor to perform an audit of financial statements and to issue an auditor’s opinion related to financial statements to assess that financial statements are fairly stated (give a true and fair view).
A financial audit performed by a certified public auditor (CPA). can also be described as an analysis of the (financial) performance of a company. Financial statements are prepared based on (different) assumptions of management and based on (certain) accounting principles and guidelines. An auditor critically analyses this information in relation to generally accepted accounting principles and standards of a country or even worldwide like International Financial Reporting Standards (IFRS) to make it also comparable.
There are many reasons to audit accounts and /or financial statements by an external auditor.
The top benefits and advantages of an audit are mentioned below:
The most common reason to perform a (financial) audit is to ascertain the correct (properly and fully stated) financial situation of a company and to ascertain the reliability of financial information of a company. The auditor will analyze the accounts and financial statements and bring forward the highlights and major (financial) concerns of a company. A shareholder, investor and the government have a need that an independent auditor will ascertain the true and fair view of (the financial statements i.e. financial position of) a company.
One of the advantages that results from auditing the financial statements is to discover risks for example related to fraud. Also differences between the financial administration and management information compared to the (external) financial statements come up.
When an auditor audits the financial statements of a company an assessment of the continuity / going concern of the financial statements of the company in the auditor’s opinion from an auditor is also included.
As an auditor we provide insight in the efficiency and effectiveness of the processes of a company. Improvements will be reported in a report (like a management letter) to the management and/or stakeholders of a company.
If financial statements are audited, a company may be prepared better prepared for investors and banks regarding investments and financing or even to prepare an initial public offering (IPO) in advance. Information in financial statement that are audited will be trusted by banks, Government, Tax Authorities etc.
Gerco Recter from Auren The Netherlands