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What is an Auditing
Financial auditing is the process of examining an organizations (or individual’s) financial records to determine if they are accurate and in accordance with any applicable rules (including accepted accounting standards), regulations, and laws.
External auditors come in from outside the organization to examine accounting and financial records and provide an independent opinion on these records. Law requires that all public companies have their financial statements externally audited.
Internal auditors work for the organization as internal employees to examine records and help improve internal processes such as operations, internal controls, risk management, and governance.
Benefits of Auditing
We see first-hand how an audit is actually beneficial as it presents you with the opportunity to improve your organisation. Here we aim to highlight just a few major benefits that an audit provides.
Obviously this is one of the main reasons to conduct an audit: to meet the statutory requirements and regulations in your industry. An audit provides complete peace of mind for business owners and shareholders that the organisation is 100% compliant with all of its current statutory obligations. Non-compliance runs the risk of incurring heavy fines, loss of customers and a tarnished reputation – damage that far outweighs the cost and any minimal, temporary inconvenience that may be caused by an audit.
- Business Improvements / System Improvements
A thorough, in-depth audit takes an impartial look at your organisation’s internal systems and controls. This means it’s an ideal opportunity for the auditing experts to suggest improvements that can make your business more efficient. Ways to improve internal controls, business systems, accounting practises, efficiencies, governance and culture can all be identified through the audit process.
An audit provides independent verification that the financial statements are a true and fair representation of the entity’s current situation. This provides invaluable credibility and confidence to your organisation’s customers/clients, stakeholders, investors or lenders and even potential buyers. It is confirmation that financially everything is as it appears to be.
- Detect and Prevent Fraud
It’s estimated that up to 30% of New Zealand businesses are subject to fraud, error and corruption. Workplace fraud can occur for years without being detected and can be so substantial that some businesses never recover financially or repair their reputations. An audit can be an effective tool for identifying fraud and opportunities to commit fraud. Experienced auditors are skilled at pinpointing weaknesses in an organisation’s systems and controls and suggesting ways to strengthen these to prevent fraud occurring.
- Better Planning and Budgeting
An audit confirms the accuracy of an organisation’s financial statements by analysing its financial transactions. It’s a detailed process and can result in certain types of income, expenditure, assets and liabilities being scrutinised. This critical examination, coupled with the auditor’s financial expertise, can then be used by business owners for better financial planning, budgeting and financial decision-making for the future.
- Documents required for Auditing
Before planning for statutory audit, we need to keep ready important document for audit. Here is list of important documents.
- Audit Engagement Letter
- Opening Trail Balance
- Last Year Signed Financial Statement
- Copy of Computation of Income of Last Year
- Shareholding Pattern
- List of Directors
- List of KMPs
- Register 301 Extracts
- Minutes of Meeting
- Form 26as
- Fixed Assets Register
- Invoice of Addition to Fixed Assets
- Invoice of Sale of Fixed Assets
- TDS Payments Challans
- PF/PT/ESIC/MLWF (whichever applicable) Payment Challans
- Advance Tax Payments Challans
- Returns Copy
- Loan Payment Sch & Loan Confirmation Letter
- Cash Balance Confirmation Letter Along with Denomination
- Bank Balance Confirmation
- Outstanding Entry Passed: Provide Supporting Xerox Copy
- List of Related Party as Per As18
- Ledger of Related Party from Tally Having Transaction
- Calculation of Foreign Exchange Profit/Loss
- Cash Ledger with Transaction More Than Rs. 20000/-
- Section 274(1)(G) Of Co. Act: Representation from Director for Qualification
- Status of Pending Income Tax Assessment
- Draft Financial Statement
- Management Representation Letter
- Any Change in MOA/AOA
- Certificate Under Sec. 40(A)(3) & 269ss & 269t Of Income Tax
- Copy of Annual Return Filled with MCA
- Calculation of Director Remuneration as Per Companies Act
- Section 383a: Secretarial Compliance Certificate
- Share Application Pending Refund