What is a Financial Audit Statement? Definition

Numerous people outside financial services consider preparing an audit in the identical category as preparing a root canal: A painful, invasive, lengthy, and expensive means. And scary too: If the auditors tap impressions, you could travel to jail. But an audit doesn’t possess to be a terrible experience and has a latent upside when your auditor experiences insights on ways to enhance your business.

WHAT IS THE MAIN PURPOSE OF A FINANCIAL AUDIT?

An audit service is designated as an approved inspection of the records of an organization, commonly achieved by someone autonomous of that organization. The main goal of a financial statement audit is an objective appraisal of an organization’s financial position. Audited financial statements present objective coolness that interested parties can rely on to make resolutions about a company — whether to invest funds, lend money, proceed credit, or otherwise do business with that company.

Accounting services don't provide a guarantee that every number is 100% accurate. Rather, they provide reasonable assurance that the financials are free of material misstatements and that they present the company's financial position in all material respects.

Auditors work within an acceptable margin of error, known as materiality. The magnitude of materiality depends on the size of the organization and its revenues and expenses. 

In a financial audit, the auditors look through the financial information for your company. They scrutinize accounting policies and a company’s internal controls. Then, they make sure that all the elements of a set of financial statements — the balance sheet, income statement, statement of cash flows, and the footnotes and disclosures — are all correctly classified, complete, and accurate within materiality.

Financial auditing has these four central objectives:

·         To decide whether the financial statements are substantially correct, comprehensive, and reported watching frequently accepted accounting principles (GAAP)

·         To estimate the probability of fraud at the organization

·         To measure whether the organization will outlive a viable business, also remembered as a going concern 

·         To recognize approaches that companionship can grow its business

These objectives are possibilities for an organization to produce their business better, making a financial audit a whole lot less scary, seen from that point of view.

WHAT ARE THE DIFFERENT TYPES OF AUDITS?

When most people hear the word audit, they think of an audit of financial statements or maybe an IRS audit. But while those are the most common, those are only two kinds of audits. So here are some of the other kinds of audits:

Compliance audit: This is an audit to ensure compliance with laws or regulations. Financial audits and IRS audits are both types of compliance audits. Other governmental agencies may require audits to determine that the beneficiaries of government programs have fulfilled their obligations. 

Internal audit: A group performs these audits within an organization to evaluate that organization’s compliance with laws, internal controls, and accounting processes to improve performance. 

Tax audit: Federal, state, or local tax authorities perform these to ensure that an individual or a business is paying the correct amount of tax. 

Information systems audit: This is an examination of an organization’s information systems to ensure information is properly and accurately processed and ensure that a company’s data is accessed only by the appropriate people. 

Forensic audit: This type of audit produces evidence used in a court of law or a judicial proceeding. These are generally ordered when there is evidence of theft, fraud, or other financial misdeeds. 

Operational audit: This is examining a company’s goals, processes, and operations to improve operations. 

Two threads running through these different kinds of audits safeguard the public interest and helping businesses improve their operations. If you’re already acting with integrity and intending to do things the right way, you have nothing to fear from being audited.