The external audit of financial statements is done with an objective to determine whether, in the auditor's opinion, the statements present fairly in all material respects and it shows a true and fair view in all material respects of the company's financial position, results of operations, and cash flows statements.
This is basically an independent appraisal of the financial statements compiled by the organization. The essence of external audit is to provide an independent or third-party assurance by the auditor that the management has, in its financial statements, presented a “true and fair” view of a company’s financial performance.
The findings and opinions is summarized as a report by the auditor, certifying the fairness of presentation of the financial statements and related disclosures. The auditor’s report must accompany the financial statements when they are issued to the intended recipients or stakeholders.
Black Stone Tax Consultancy – a Professional Tax and Management Consultancy Firm takes this assignment to offer quality External/Financial Statement Audit Services in Dubai across the UAE.
An audit is an important process to establish the credibility to a set of financial statements and at the same time boosts the shareholders confidence that the accounts are true and fair. This is a tool that help to improve a company's internal controls and systems.
While Periodic internal audits work to uncover instances of fraud, errors and actions and mitigate the risk to damage a company's reputation and put its future at a threat. External audits not only provide another layer of control, but also create transparency and enhance a company's public image.
The core purpose of conducting a Financial Statement Audit is to obtain a third party’s independent opinion as compared to the opinion of management. This is highly essential to ensure that what is reflected in the financial statements such as Income Statements/Profit & Loss Statement and Balance Sheet reflects reliable data. In short, the external auditors report adds credibility to the reported financial position and performance of a business. The Country’s Tax authority while assessing the declared income and profits, need this kind of confirmation from an independent auditor in order to complete the assessment process. In addition, the Lenders and Suppliers also require an audit of the financial statements of any entity before they will be willing to lend or extend trade credit.
The External Audit Procedures start with the verification of financial transactions with audit materiality and collection and evaluation of evidence in support of conclusions. The basic procedures for an external Audit that is undertaken by an auditor are:
Planning and risk assessment. Involves gaining an understanding of the business and the business environment in which it operates and using this information to assess whether there may be risks that could impact the financial statements.
• Preparing the Audit Plan is the first stage of an external audit that involves the auditor to collate the information contained in the documents, analyze and identify the risks that could impact the financial statements. Based on the findings, an audit plan is then drafted. The Auditor must attain a sufficient background of the company to assess the risk of material misstatement on financial statements and to design the nature, timing, and extent of further audit procedures. The risk assessment procedures include inquiries of management and others within the entity, analytical procedures, observation and inspection, and other procedures.
• Assessment of the Internal controls involves testing the effectiveness of an entity’s suite of controls, concentrating on such areas as proper authorization, the safeguarding of assets, and the segregation of duties.
Assurance is the process of analyzing the processes, controls, and operations of an organization and verifying the accuracy of it.
Assurance services provide a critical assessment of the procedures used in the preparation of accounting and financial records. Auditing is a type of assurance service towards the accuracy of financial statements.
As compared to a statutory audit which is compulsory for specific companies by law, the other companies that aren’t obliged to get an external audit use assurance services for their financial records
Assurance services can be obtained for any regulation or compliance. It can be for internal controls, IT systems, financial forecasting and other procedures or departments that are intact in the company.
Assurance services are independent services offered to provide confidence to the stakeholders that the organization is following the guidelines, rules, and policies accurately.
A report is provided after a thorough walk-through and analysis which focuses on how the procedures can be improved to ensure accurate financial information is produced by the company.
Once the Audit plan is approved, execution starts with fieldwork, walk-through, enquiry, questionnaire etc. The auditor keeps the client well informed of the audit process and the status of the audit.
The next step is the submission of draft report, once the execution process is completed, the observations are gathered in a draft report. All the observations are listed, magnitude of the risk being highlighted along with the responsibility of the concerned person. This report is being forwarded to the Management or Authorized personnel to comment upon the highlighted issues or concerns and deviations if any.
It is a prudent practice to do a follow up on what actions have been taken on the issues or concerns that had been reported. This process shall be a continuous one so as to update the management on the status of observations and its closure status. This is with an idea to keep the management updated on any long-pending observations which might be critical to the business operations.
Independent review and appraisal of the organization’s financial and relevant operational activities will be better when the internal auditor is not part of the organization and is independent.