Financial audit
Trustee services
This type of service is an independent professional service provided by professional auditors or audit firms. The purpose of such services is to improve the quality of information in such a way that it is reliable for decision-makers and they can make appropriate (including economic) decisions based on the information provided. Effective relationships between businesses and stakeholders are based on trust.
The assurance service involves the drawing of a conclusion by a professional auditor in order to increase the level of reliability of the relevant information for the interested person, in cases where the interested person differs from the person responsible for the presented information.
Independence Audits and audit firms and their risks
When providing assurance services, the audit firm must be independent. The types of threats to independence are:
- The threat of personal gain - occurs when the auditor's action is motivated by the motivation to satisfy his own financial, emotional interests.
- Assurance threat - occurs when the auditor has to verify the work or part of the work performed by him.
- The threat of illegal protection - occurs when the auditor presents himself as a defender of the client's interests or a person defending the opposite position of the client's interests, and not as an independent professional.
- Family relationship threat - occurs when the auditor is exposed to risks and circumstances caused by close relationships with the client.
- Threat of blackmail - occurs when the auditor is under pressure from the client or other interested party or considers himself to be under pressure.
There are types of assurance services
external audit - During such a transaction, the auditing firm checks the financial statements of the company, determines the regulatory framework for the preparation of financial statements, which is used as a criterion for the analysis of financial statements. The mentioned process mainly involves obtaining sufficient and suitable evidence. The result of such a transaction is a report prepared by the auditor, which contains the auditor's opinion on the financial statements and the way in which he was able to reach that opinion.
International financial reporting standards
The external auditor's opinion, presented in a positive form, represents a conclusion that the financial statements are free from material errors and have been prepared in accordance with international financial reporting standards. The external auditor's opinion involves obtaining reasonable assurance, which requires comprehensive, detailed testing and other appropriate procedures to enable the auditor to obtain sufficient appropriate evidence.
In many jurisdictions of the world, as well as in the legislative space of Georgia, conducting an external audit is mandatory for certain categories of companies.
Size category of the company
In order to determine the obligation defined by the legislation to conduct an audit, the size category of the company must be determined. When determining the size category, the total amount of the company's assets, the company's revenues and the number of employees in relation to the relevant period are taken into account. Similarly, the dynamics of the listed indicators over the years.
A limited trust transaction
Such a transaction is similar to an external audit transaction in that the auditor will obtain sufficient evidence to express an opinion.
The opinion, during limited assurance, is presented in a negative form, where the auditor expresses the opinion that as a result of the conducted work, his attention was not drawn to such a circumstance that indicated to him the existence of a material inaccuracy in the financial statements.
A limited trust transaction provides low trust for stakeholders.
interested parties
Interested persons may be divided into persons outside and inside the relevant entity:
External stakeholders
- external shareholders of the company,
- state bodies,
- suppliers,
- banks,
- potential investors, etc.
In many cases, external stakeholders want to be kept abreast of the company's results to ensure that the company is meeting their expectations. Banks and potential investors want to have information about the risks facing the company as well as the measures that the company is taking to reduce such risks.
Internal stakeholders
- company managers,
- owners,
- employed persons.
In addition to assurance services, other transactions include services such as:
- agreed procedures,
- compilation of financial statements,
- consultations.
There are elements of authenticating services
- Three-way relationship - auditor, interested party, person responsible for financial statements
- relevant issue to be discussed
- relevant criteria
- Sufficient and suitable evidence
- Auditor's report for reasonable or limited assurance.
Review of internal controls
In the course of assurance services, auditors often review the company's internal control systems and inform the company's management of the identified deficiencies at the end of the transaction.
Proper operation of internal control systems is a means of preparation of financial statements free from material inaccuracies.
The advantages of the assurance service can be formulated as follows
- The assurance service increases the reliability of the information provided to the user, if the opinion of an independent professional is issued in relation to the information.
- The procedures that are carried out during the verification service help to discover such issues that were previously unknown to persons equipped with the right to drive.
- As a result of joint work of auditors and management, company processes are often improved. However, at the same time, it is necessary to clearly separate the role of the auditor and the manager.
- Coaching services help drivers to improve their work and improve their quality.
The following factors may be considered as the disadvantages of the maintenance service
- Assurance services cannot provide absolute assurance that the subject matter is absolutely free of errors.
- Audits are often performed for a wide range of users, which may limit the quality of useful information for specific interested parties.
Conclusion on financial audit and assurance services
Audits and other assurance services are often required by country law, but their benefits are manifold. Many companies can benefit from this and improve their management efficiency, financial reporting function, etc.
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