Audit, Attestation and Assurance
What Is Auditing?
Auditing, or a financial audit, is an official examination and verification of a business’s financial records.
The main goal of auditing is to make sure that a company’s financial statement are accurate and are following regulatory guidelines. Auditing also gives investors, creditors, and other stakeholders reasonable assurance that they can rely on a company and its integrity.
Now, it’s important to note that auditing doesn’t provide a complete guarantee that every digit recorded in a company’s financial reports is accurate. Auditors work within a specific, reasonable margin of error known as materiality. The volume of materiality depends on the size of the company and its reported revenue and expenses.
For small businesses, an accounting error of a few thousand dollars might be significant, but for a large corporation like Apple or Amazon, such a material mistake may be considered as a conventional mistake and not a cause for concern.
The Importance of Auditing
Credibility and Reliability
With an internal auditing system, your business can create accurate and reliable financial reports through which you can gain insights on which segments or product lines are performing best and how to properly allocate resources. Additionally, regular auditing will make your shareholders trust that your accounts are true and fair and that it’s safe to invest in your business.
Preventing Fraud
If the government audits your financial statements and finds that your business has been manipulating its financial health, or hiding revenue and losses, you’ll likely deal with severe fees and legal punishments. Your business will also acquire a bad reputation, and you will most likely lose reliability in the eyes of your customers and stakeholders.
Recurring internal audits by a professional auditor or accountant of the company play an important role in detecting these fraud cases before they become substantial and problematic. Having a rigorous auditing system set in place alone prevents and scares employees or vendors from attempting a scheme to defraud your business in the first place.
Main Types of Auditing
Depending on who performs financial audits, we categorize audits into three main categories: internal, external, and government audits.
1. Internal Audits
An internal audit is an audit performed by a qualified auditor or accountant who is part of your company. This audit helps assure your business is in compliance with laws and regulations and is accurately recording financial information. Regularly performing these internal audits also ensures risk management and guards you against possible issues such as fraud, waste, or financial abuse.
You can conduct these audits on a weekly, monthly, or annual basis, depending on the circumstances and the agenda which best suits your business demands.
You have to identify which department you wish to audit first during these internal audits. Next, the chosen auditor will collect as much information on that department’s internal control process, and conduct fieldwork testing. Once the evaluation is completed, the auditor will prepare an official auditor’s report, follow up with management regarding any issues found, and suggest possible solutions.
2. External Audits
An external audit is an audit of your financial statements made by an independent, third-party professional. These types of audits can be extremely helpful as they’re more unbiased and reliable than internal audits.
External auditors can be candid and honest about the issues found during the audit, without affecting daily work relationships within the business. Key responsibilities of an external auditor include planning and implementing audit procedures, examining accounts and financial statements, analysing business risks, preparing an audit report, and discussing the end conclusion with the management department of their client.
3. IRS Audits
Internal Revenue Service (IRS) audits, or tax audits, are government reviews conducted to a business to ensure that financial data has been reported in compliance with tax laws.
Sometimes, IRS audits are conducted randomly, but more often than not IRS selects businesses based on suspicious activity, such as unusual deductions or uncommon sources of income. If you’re selected, the audit will either be conducted by mail, at the IRS offices, or in your business field.
Mail audits are documentation requests from the IRS that you will receive and send via email. Office audits consist of in-depth, in-person interviews where IRS agents review your tax returns and examine all relevant information to legitimize your financial reporting. Field audits within your business premises are similar to office audits, but the IRS agents will also make assessments based upon your business place and the processes occurring there.
Attestation
Meaning
Attestation is the process for scrutinizing the authenticity of a document by corroborating every detail given on it and then manifesting it authentic with the sign and stamp of verifying personnel on it. Legalization of a document to the required level is obligatory so that it could be accepted easily in any foreign country. In India, the Ministry of External Affairs (MEA) is government authority for attestation of public documents.
Types of attestation
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State attestation: First, all the documents need to be attested by the authorities of the issuing state. Human resource development (HRD), Home Department and chamber of commerce are the state authorities responsible for attesting educational, personal and commercial documents respectively.
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MEA Attestation: MEA is the highest body for document attestation of India. It attests the document after sate authentication.
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Embassy attestation: This is the final step of attestation done after MEA attestation. After embassy attestation your document will becomes valid in that particular country.
Why attestation is required?
For applying for any category of visa including employment visa, residence visa, business visa, and others. For example, if you are planning to visit UAE for job, then for getting the work visa you will have to attest your educational and personal document from UAE embassy in India. Without attestation your visa will not be processed and your documents will also not be considered legal. So for avoiding all these hassles, attestation is required. Same, if you want to take admission in any university in abroad or want to apply for a new job overseas or for changing the current job you will require attestation. There are chances that without proper attestation your request will be rejected for the same. So for proving the authenticity of your documents overseas you will have to attest your documents.
Assurance:
Building Confidence by Examining the Credibility of Information
When companies do business with other organizations, trying to raise money from outside investors, or are even engaging in merger deals, they need to be reassured that the data and information presented is accurate and credible. This instance is when assurance services come into play. Assurance work provided by a certified public accountant aims to substantiate the data that is presented. The accountant will give their opinion regarding the information that can be used by the company to make a decision.
So an investor may ask for assurance work to check the financial information in regards to a company that has asked for funding. The certified public account would review the gathered information and put it through given procedures before providing a report so that the investor can trust the given data before agreeing to the financial transaction.
An assurance service basically provides three main goals for an organization:
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Helps the company’s reputation that it is presenting truthful information regarding their data, internal controls and systems
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Assists companies to make the best decisions for their operations to promote financial growth
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Increase credibility in the provided information that can lead to lower transaction costs and better resource allocations
Assurance services can be used toward a wide range of purposes. A company may want to check to ensure all financial information is accurate. They may also desire assurance services to see if a company abides by all established regulations and compliance standards.
DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.
It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information