The Auditing Process

Auditing can be characterized as the on-site inspection or review of a process or quality system, to ensure compliance with certain requirements or standards. An audit may refer to a whole enterprise or to a particular role, operation, or manufacturing phase. Some audits are conducted for administrative reasons, such as auditing records, risk, or results, or following up on implemented corrective measures.

In this case, an audit is a systematic examination of a person's, business's, or organization's financial records. Internal audits are performed by individuals of the same company or corporation, while external audits may be conducted by an auditing or governmental entity. It is usually implemented ensure that the organisation’s financial data are represented fairly and accurately which in turn garner trust in the company’s internal management systems & its financial accounts by the internal decision making stakeholders (such as shareholders and managers).

There are various accounting and auditing companies in Sri Lanka. Auditing companies employ qualified professionals to carry out a variety of activities, such as accounting, bookkeeping and auditing. In Sri Lanka, this form of company is regarded as a necessary legislative framework for all types of companies. No matter the organisation you choose to conduct your audit, say an Audit Firm in Colombo and Auditing Firms in Gampaha or Kandy, would follow the same set of common standards established by the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB). However, it can be noted that the high profile Audit Firms in Colombo are given more prominence than others.

THERE ARE 3 TYPES OF AUDITS:

First Party Audi – A first party audit is carried out within an organisation to assess the success and shortcomings in relation to its own processes or practices, as well as external criteria accepted by (voluntary) or enforced on (mandatory) the organization. A first party audit is an independent audit done by auditors who work within the company being audited, but have little to no personal stake in the audit findings of the area under audit.

Second Party Audi – This is where a client or a contracting company on behalf of a customer conducts a second-party investigation on a supplier. It should be noted that, since they are giving contractual guidance from the client to the seller, second-party audits are governed by contract law. Since the audit findings can affect the customer's buying decisions, second-party audits are found to be more formal than first-party audits.

Third Party Audit – A third-party audit is conducted by an auditing firm that is unaffiliated with the customer-supplier relationship and free of all potential conflicts of interest. The auditing organization's integrity is a vital aspect of a third party audit. Certification, authorization, warning, recognition, awarding, licensing acceptance, a fine, or a penalty can be given by the third-party agency or an involved party as a result of third-party audits.

Planning, Developing internal controls, Testing, and Reporting are the four primary steps of a traditional company financial audit.

Planning – To begin your financial audit of your business, you must develop a data collection strategy. This is the first step toward collecting reliable data about your corporate transactions in order to help understand the company's actual financial situation. You will easily gather error-free objective data by deciding the best data collection process, which is crucial in preserving the credibility of your financial statements and aiding you in making rational business decisions based off accurate financial representation of your company.

Developing Internal Control – The auditors who is to verify the accuracy of the vital financial records will look at more than just the information you've gathered. They might be prompted to examine the accounting practices & standards that the company has established. As a result, maintaining internal controls and adhering to them as strictly as possible is just as critical as gathering accurate data on the company transactions. Otherwise, the auditor would have a much more difficult time producing a credible analysis on the company's financial situation.

Testing – When the company has recorded all of the relevant business data and implemented effective internal controls, the next step is to test those controls to see how they function and add value to the business. To determine how effectively the company's implemented internal controls are performing, the auditor can request additional details about the company's business transactions, resume the audit, and monitor how the internal controls are implemented firsthand.

Report – Giving a reported conclusion on how the organization adheres to accounting principles is the final step of financial audit. Auditors will issue audit reports based on the findings of their thorough investigation once they have gone over every aspect of financial transactions that have occurred in that annum. The value of auditing procedures can't be overstated. The scope of the audit, auditors' rights and obligations, management's responsibilities, core accounting standards, audited financial records, and audit recommendation are all included in the audit report.

Financial statements are documents that contain details regarding a company's financial status and results. A broad variety of stakeholders (for example, investors, creditors & potential investors) use this data to make economic decisions. Typically, the owners, who own a business, are not the ones who run it. As a result, credible certification provides comfort to the stakeholders of these firms (as well as other stakeholders such as financial institutions, lenders, and customers) that the financial statements equally present the company's financial status and results in all material respects. A professional third party (an auditor) is contracted to review the financial statements, and relevant reports generated by management, and give their professional assessment on whether they reasonably represent the company's true financial results over a given period(s) (an income statement) and financial status (a balance sheet) and are in accordance with relevant body of accounting standards.

A detailed financial analysis will help you find out where your business is right now and what you need to do to get things going in the right direction. However, manual audits are often very tedious and time consuming, therefore there are many web based automated systems or various external parties that can be utilized to the make all recordings much more smoother hence making the audit process much more simplified. Automating or outsourcing certain aspects of the financial audit process is a critical step toward better & more streamlined financial management for the business.