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What is an Audit?
Auditors assess a set of company accounts to determine if they present a true and fair presentation of the company’s accounts.
What does an audit do?
An audit provides comfort or assurance to the users that an independent third party has examined the accounts and agrees with the presented reports.
Each individual line of a set of published accounts needs to be tested. Every transaction is not tested but the values are tested in two ways, either substantive testing or control testing.
Substantive testing is where the auditor selects a sample set of transactions and checks these for evidence that the transaction occurred through confirming the invoice was sent, the customer paid the invoice and sometimes contacting the client to confirm that the transaction actually occurred. Auditors test enough transaction until they feel that the figure shown in the account is correct
Internal controls is a process that is designed to reduce the risk of fraud or error. An example of a good control is two signatories on all cheques or EFT payments. If the company has good controls, then auditors can test the operation of the controls and if satisfied that it is working effectively then less or no substantive testing needs to be done.
What auditor’s don’t do
Auditors do not look for fraud but they keep a lookout for it and they don’t check every transaction just the material ones that may have an impact on the final accounts.
At the end an auditor issues an audit report which states their opinion of the accounts and highlights any issues found.
An internal audit is where the company involves internal auditors to review and assess internal processes and report generally to the board.
The internal audit generally reduces the external auditors work by ensuring that good controls have been implanted and tested to detect and reduce the risk of fraud and error.
Auditors do not work for the company being audited they work on behalf of the shareholders.
The shareholders are the ones who decide who the auditor will be.
Who needs an audit?
If you are one of the following then you may be required to have your accounts audited:
- Public company
- A charity and not for profit entity with revenue greater than $1,000,000
- A company limited by guarantee with revenue greater than $1,000,000
- A self-managed superannuation fund
- A trust account held by a solicitor/conveyancer/real estate agent/accountant
- An incorporated association if required by their constitution
Or a large proprietary company if:
- Consolidated turnover is greater than $25,000,000
- Consolidated assets is greater than $12,500,000
- Has more than 50 employees at the end of the financial year
Check out another recent blog in this category.
Ready to rest easy knowing your business finances are in good hands?