Steps of a Financial Statement Audit

Steps of a Financial Statement Audit

An audited financial statement is the disclosure and assessment on the financial statements of a company by independent auditors. They then give their audit opinion (Also see What is a Qualified Audit Report?) as to whether those statements present a true and fair view of the financial performance of the business.

The financial statements that the auditors from an audit firm Johor Bahru will audit includes:

Balance sheet

This statement reveals the financial position of a company at a given time by specifying its assets, liabilities, as well as equity. This is for the company’s management and its stakeholders to understand what the company owns and the liabilities it needs to deal with.

Profit and loss statement

This statement shows the company’s financial performance throughout a particular accounting period. By using this statement, the management and stakeholders can know about the revenue and expenses associated to the operating and non-operating activities of the company, and the net profit or loss the company has experienced in the current accounting period.

Cash flow statement

By using this statement, the management and stakeholders can see the amounts of cash and cash equivalents the company has received or spent throughout a particular period.

Typically, companies would use the financial statements mentioned above for audit purposes. Nevertheless, they may make some adjustments to those statements after finalisation of the audit so that they can present the facts in a better way.

Steps of a Financial Statement Audit

Audit planning and risks assessment

This is the first step of a financial statement audit which involves the formation of an audit team and listing the general principles that the company and the auditors should adhere to. This is to enhance the efficiency of the audit work and the key to determine appropriate audit approaches to be used. Next, the auditors need to identify any risks that may bring to material misstatements in the financial statements. In the process of identifying possible risks, the auditors need to have an in-depth understanding of the business environment and the industry that the company is operating in.

Testing for the company’s internal controls

In this process, the auditors need to conduct a critical analysis for the internal controls (Also see What is a Test of Control?) the company has implemented and assess the ability of the controls in removing the risks of having material misstatements in the company’s financial statement. An example of those internal controls includes some automated processes and systems the company uses to enhance the efficiency of its operations, safeguard its assets, as well as ensure that the transactions reported are accurate.

Performing substantive tests

The auditors need to collect substantial evidence and conduct cross-verification of the figures and facts the company has reported in its financial statements. The substantive tests may include:

– Getting confirmation from a third party or any external sources on the financial transactions and the related details the company has reported. In most cases, this will include an unbiased confirmation from the bank or another entity that the company is cooperating with when it is running the business

– Inspect the assets (Also see Guide to Operating Assets) physically if necessary

– Cross-checking the sums that the company has reported in its statements against the original records and documents

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