Financial statements are a form by which a business fulfills its responsibilities to its stakeholders. A company audit is an important activity that you should perform regularly. Choosing audit Firms and tax services is essential to conduct day-to-day business operations. An audit is performed on a company’s financial statements and is the best source of information to understand the company’s current state. Here are the reasons why companies need to be audited.
Importance of the Auditing Process
The audit process is the best way to ensure that a company’s financial statements are fair and correct. Auditing is more than just looking for errors or fraud. However, an audit aims to ensure that the financial statements act following applicable accounting standards and provide an objective view of the company’s current condition.
A financial audit aims to find vital information about the company’s inventory and other important components. Audits are also used to verify that the information in a company’s financial statements is correct and corresponds to actual events or circumstances.
However, the objectives of the audit can be broadly grouped into three different sections:
Management control involving all stages of a company’s operations is designed to determine whether current controls effectively achieve the company’s objectives.
Information gathering can serve as a basis for management to improve company performance.
Audit findings from operational and compliance inspections are recommendations for management improvement.
Corporate Companies can maintain and grow their business through regular audits. In addition, by conducting audits, companies also gain other benefits, namely, enhancing the company’s credibility, increasing the efficiency and honesty of employees, increasing the efficiency of the company’s operations, and encouraging the efficiency of capital markets.
What is accountability?
Accountability is the concept that an individual or department is responsible for the performance or results of a particular activity. Essentially, the in-charge party is responsible for performing the required Role.
The dominant party delegates roles to other parties but remains liable if actions are improperly executed or losses occur. It is pervasive in the financial sector and throughout the business world.
Audit and Corporate Accountability
The bases of modern corporate governance were initiated back at the time when the Role of managing entities was separated from ownership and based on agency. Corporate governance, accounting, and accountability in state-owned enterprises are vital and growing topics in public administration and other research disciplines.
Corporate governance involves how shareholders (managers) motivate management (agents) to effectively align management goals with shareholders and ensure sufficient information flow for adequate oversight and control of managerial behavior.
Basic Theory of Corporate Governance
Corporate governance is the system of directing and controlling an organization. It includes the relationship between the board of directors, shareholders, and other stakeholders and the impact on the company’s strategy and performance. Corporate governance is important because it focuses on how decision-makers behave, how they can or should be supervised, and how they are held accountable for their decisions and actions.
Many firms regulators use best practice guidelines, often called a “comply or explain” approach to corporate governance. Under this approach, the regulator issues a set of principles that directors of public companies are expected to abide by. For example, in many jurisdictions, disclosures in financial statements are required to demonstrate compliance. Non-compliance is not expected, but non-compliance must be disclosed and explained in such cases.
Auditor’s Role in Ensuring Corporate Accountability
Corporate accountability refers to the performance of listed companies in non-financial areas such as social responsibility, sustainable development, and corporate governance. Corporate accountability argues that financial performance should not be the only important objective of a company and that shareholders are not the only individuals to whom firms should be accountable. It includes stakeholders such as workers and community members who must be held responsible.
Submit reports about the company’s statutory accounts.
The company’s annual accounts must be presented to shareholders at a general meeting. This enables the company to review the company’s oversight during the previous year and approve the appointment or removal of auditors. It also influences other major decisions that affect the business, such as enhancing the confidence of creditors and investors in financial statements.
Auditors are appointed to provide an independent and honest opinion on the company’s financial condition. They gather appropriate and sufficient evidence and compare and confirm information until they have reasonable assurance about their findings.
In performing the above duties, follow the following procedures;
- Perform analytical procedures for expected or unexpected differences in account balances or transaction categories.
- Reconciliation of accounts receivable and other accounts with third parties.
- Investigate management and other departments to gain insight into company operations.
- Assess and understand the internal control system
- Physical Inventory Control
Auditors are responsible for identifying illicit financial activities and regulatory non-compliance by companies. Routine and comprehensive assessments of a company’s controls will ensure that the company does not come under regulatory scrutiny for any reason.
One of the main areas to review is tax compliance. Most companies must be made aware of the specific taxes they must pay on transactions and the regular taxes they pay. The auditor should promptly advise on all necessary steps and keep the company informed of any developments in the regulatory field. For public companies, agencies such as the Securities and Exchange Commission and other professional organizations regulate their operations.
Standard accounting principles and guidelines, including International Financial Reporting Standards, must also be followed.
Negative regulatory impacts may include fines and non-monetary penalties such as suspension. On the other hand, regulatory control helps companies save money and provides opportunities to expand their business.
Internal controls are firms policies and procedures to assure the integrity and accountability of financial and accounting data. It is also the process of ensuring the organization’s operational effectiveness and efficiency goals, reliable financial reporting, and regulatory compliance.
Auditors help manage a company’s affairs and provide guidance on internal control issues. They help department heads identify tools and methods to improve operational activities and put the company on a more financially viable path. These senior executives develop policies and procedures that require auditors to guide the effectiveness and adequacy of the company’s internal charges.
The internal audit portrays a true picture of a company’s internal controls, including corporate governance performances and accounting processes. Ensure legal compliance, financial reporting, and reliable and timely data collection. It can also identify issues and correct vulnerabilities before they are discovered during external audits.
In short, auditors review a company’s accounting methods to ensure the correct steps are taken to avoid fraud. Procedures for signing checks, making supplier payments, and processing deposits must be verified before implementation.
Auditors in Dubai assure investors and creditors of the efficient handling of funds.
They review necessary data and delve into relevant records to determine whether a company’s financial records reliably reflect its true financial position.
They also protect innocent third parties from investing in entities with false financial statements (with intent to defraud) or corrupt business practices.
According to the current findings, the internal audit function is an important indicator of legitimate corporate responsibility, while corporate governance is not. Related results suggest that both internal Firms In Uae function and corporate governance contribute to positive changes in accountability. However, the internal audit function is a more important variable than corporate governance in predicting corporate legal liability. The findings of this study suggest that accountability failures in these firms may be due to the failure of the internal audit function to fulfill its responsibilities to provide adequate scrutiny of internal controls and engagement in risk management.
Corporate governance may not be a significant predictor of accountability, mainly because different corporate governance characteristics may independently predict accountability. These findings are consistent with findings that effective internal audit enhances accountability. Who found that the effectiveness of audit committees and internal audit functions significantly influenced law firms accountability. When it comes to the breadth of internal control to address the achievement of objectives in areas such as financial reporting, operations, and compliance with laws and regulations, internal control is a means of directing and controlling organizational resources and, therefore, has a strong measure of strength, the audit function of state-owned enterprises will automatically increase.
Therefore, corporate companies should conduct audits to determine and verify the absence of fraud and the reliability of financial statements prepared by accountants. Auditing firms in UAE can also serve as a driver for accounting work.
Many companies that struggled to grow were close to failure because they never went through the routine business review process, like a person with a chronic disease who becomes incurable because of a delay in regular check-ups. Hence, an early business inspection is recommended to understand and predict the worst-case scenario for your company.