Financial Audit – Definition, Objectives, Characteristics and Processes

The financial audit is responsible for the review and verification of the various annual accounts, as well as the accounting documents that are prepared under the framework of the financial information standards that result from the application of the different activities that aim to carry out of a documentation report that is reliable to third parties.

This financial audit consists of giving credibility to the effects that show a reliable image of the gift, of the financial management and of the favorable results that are related to the company or item that is audited.

This system is carried out to incorporate the greatest possible position, given the statement expressed in the operation of a company. It is responsible for the financial statements to show the fidelity of the item’s position and the function of the parties that are interested in the company internally.

What Are the Objectives of Financial Audits?

Among the main objectives are:

  • Its main objective is to communicate the reasonableness of the financial statements prepared by the administrative part of a particular company or public entity.
  • Verify if the established objectives and goals are achieved, in terms of the presentation of the production of goods or services, through companies or public administration bodies.
  • Verify that all controls related to income are carried out efficiently.
  • To affirm that the legal disposition, the standards and the regulations that are applied in the execution of the activities that must be developed are being fulfilled.
  • Design recommendations that improve internal control and strengthen operational efficiency.

Characteristics of the Financial Audit

Among the most important features can be mentioned are the following:

  • It is the fundamental part that controls the company and that it must incorporate in its structure and financial function since its success depends on its success or failure.
  • Although its financial functioning is correct, it is necessary that an external who is disinterested and impartial within the company executes the review of its financial status that has been developed.
  • It allows to find possible frauds and establish them in a document where the failures are found and the possible solutions that must be implemented to improve.
  • It is a perfect tool for the company to detect faults, that cannot be detected internally, but through an audit, it can be identified.
  • Its purpose is to ensure that the financial information is presented according to the criteria that are established and correspond to the accounting and economic reality of the company.

Financial Audit Processes

The procedure that is carried out within a financial audit, is related to the beginning of the issuance of the work order and ends with the incorporation of a report, which expresses the various activities related to the company’s standards and related to its respective review. Within the processes are:

1# The Planning

It represents the first phase of the audit process and its work will depend on the efficiency and effectiveness of the achievement of the objectives, where all the necessary resources will be used.

In this phase, alternatives and appropriate methods are chosen for the execution of the activities. These must be creative, transparent and must be carried out by a professional team that has the corresponding experience.

The planning begins with gathering the information needed to apply the strategies to be executed and ends with the definition where the activities in this phase of execution are detailed.

2# Work Execution

In this phase, the auditor applies the procedure within the audit program and develops the failures that are considered dangerous. The auditor also determines the conditions and causes of the failures that have been identified.

It is very important that the auditor constantly communicates with those who work within the company, to keep them informed about all the failures found and demand the justifications or take action to correct them.

3# The Participation of the Results

In this last phase, the result of the audit is communicated, although during its development it has already participated. This communication must participate in the company’s officials, to inform them regarding everything observed through a report that will be passed to the authorities and officials responsible for operations in accordance with the corresponding law.

The financial audit has been created with the purpose of increasing the possible presence of a significant inaccuracy that is detected through various audit processes. That means that an error can define false information that determines a fraud or error that must be modified in the decisions by the interested parties.

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Ahmed Ismail

I'm a Civil Engineer. I like reading everything related to Business so I decided to launch the "Fast Grow Company" website to help Entrepreneurs in their business journey. Keep updated and follow us.

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