Introduction to Audit

Introduction to Audit

Basically, audit refers to a test on financial reports or other reports by an independent individual or organisation where they will express their opinion according to the facts of their review. The auditors from the audit firms in Johor Bahru can provide the companies with different types of audit and levels of assurance.

For instance, a financial audit (Also see Steps of a Financial Statement Audit) is an audit that independent audit firms will perform on the financial statement of a company. On the other hand, an internal audit is an audit which the internal audit team that the company has employed will perform.

Auditors help the users of a company’s financial statements, particularly its owners or shareholders to be more assured on those statements that they use. In other words, the auditors are a group of individuals which monitors the activities of other entities to make sure that the entities behave ethically and legally. They help the shareholders and the owners in verifying the financial statements which the directors who operate the company have prepared.

Generally, auditors should comply with the mandatory guidelines from the professional bodies as well as maintain the main code of ethics to make sure that they provide reliable and unbiased audit opinion (Also see Types of Audit Opinion). For instance, the external auditors who audit the financial statements according to the ISA have to comply with the code of ethics of the International Federation of Accountants (IFAC). For internal auditors under the Institute of Internal Auditor (IIA), they need to adhere to the code of ethics of the IIA. The auditors may implement different audit strategies and audit approaches according to their professional judgement.

The Objectives of Having Audits

  • Auditors aim to protect the interest of an entity and its owner and nowadays, the requirement of auditors scale up from protecting the interests of the owners to that of the stakeholders. For the independent third-party audit firms, the financial statement auditing aims to provide an assurance (Also see The Difference Between Audit and Assurance) to their customers or to express an audit opinion on whether the financial statements that the entity has prepared are true and fair. Entities may get their financial statements audited due to a few factors, which includes the requirements of laws or regulations, the requests from the creditors or banks (Also see An Overview of Bank Reconciliation), or some of them just want to do it voluntarily.
  • For compliant auditors, an audit aims to allow them to assess whether the entities are implementing the laws, regulations and policies correctly and fully. For instance, the central bank or the national bank demands all the financial institutions that operate in the country to hire compliant auditors. The compliant auditors need to report to them regularly and state if the banks have fully or correctly implemented the laws and regulations the central bank has set or not.
  • The purposes of the internal auditors may be different. The primary objective of the internal auditors is to review the internal controls of an entity, which may include internal control over financial reporting, compliance, operation, as well as the value of money audit.

Who is an Auditor?

An auditor is a person or an entity that perform audit works independently. Normally, audit firms will employ external auditors, whereas the public or private entities will hire internal auditors.

Due to the requirement of the local regulator or the entity itself, it may hire internal auditors to work in a division or department of internal audit. Typically, the Human Resource department may employ internal auditors, yet the employment of the Chief of Internal Audit may require the involvement of stakeholders. The auditors must be independent of the company’s operation and any interest which may impair the quality of audit works they perform.

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