Financial statements of companies with annual income in excess of £6.5 million and companies’ assets more than £3.26 million are required to be audited by law.
It is the responsibility of the registered auditors to carry out the audit assignments according to International Auditing Standards. Generally, the auditors will look at businesses financial recording system and internal controls systems to verify its effectiveness.
Revenues and Expense
The accounting system a business adopted in recording its sales and expenditure. The way sale and expense is processed whether the expense transaction is authorized for payment and sale deal is recorded on time and a debtors system is in place to monitor outstanding sales invoices, how bad debts are dealt with.
Assets and Liabilities
The auditors may verify the existence of the assets and its ownership and ensure the values of the assets are true and fair and reflect the current market value. The assets of the business referred to include stock, trade debtors and property and equipment. Similar verification will be carried out on liabilities to ensure monies owed by the business are incurred by the companies and they are not loans for directors put through to the business.
Internal Control
Whether more than one signatory are required for a cheque amount more than £20,000 and authorization is obtained for large sum payment and the frequency of reconciliation on carried out in petty cash in the office to small cash expenses.
Accounting Policies
The accounting policy adopted for stock accounting. The policy adopted should bring the valuation of the goods and products to its net realizable value or costs.
Depreciating business assets with the reasonable economic useful life and taking the depreciation amount to profit and loss account.
Most importantly the policies selected must be applied consistently from year to year and any change must be justified.
Audit risk
The risk of fraud and other irregularities of people in the business may adopt to manipulate the figures in the accounts. For example, in restaurants business, the cash may subject to misappropriation by any level of staff authorize to deal with cash and the auditors will be looking at what are the internal controls system are put in place to mitigate the associated risks.
Accounting and auditing rules
Consider any accounting or auditing rules required by statute, for example the audit of Building Societies are governed by the Building Societies Act 1986.
Regulatory body
Consider the requirement of any regulatory body applicable to the business. A registered charity company must comply with the Regulator for Charities in England Wales in its charitable activities and in terms of its accounting records.
Previous year’s statutory reports
The trading history of a business provides important gesture to auditors as to the way the business has been operated and the inheritance and associated risks level as well as the growth. This information can be obtained from the following documents.
•Signed accounts
•The auditors’ opinion
•The auditors
•Date of the report
Concise Accountancy – concise auditing reducing business risk
