Company Audit

When a huge company or an organisation is managed, many factors need to be taken care. Attention should be paid to all details, so no flaws exist in the company’s management. Managing the finances of such big organisations is a complex task. Mistakes could happen while dealing with finances and fraud organisations. To deal with such issues, a company audit is conducted, and an audit report of the company is generated. Audits make managing the finances of big institutions easy and efficient. Company audits could also detect flaws in the financial structures and frauds.

Company Audit

A company audit is an internal or external inspection of the company’s finances. It is an independent inspection of the finances only. The audit is conducted for a company irrespective of whether it’s profit-oriented or not. Whether it’s a big enterprise or a small company, the legal form of the company does not contribute to whether a company is subjected to an audit. The company audit is done for all companies. The audit ensures that the company keeps sufficient records required by the law. Auditors consider the propositions, obtain evidence for the same, and then generate an audit report for a company. 

How Company Audit Works

Audits are performed on the public as well as the private corporations. Publicly listed companies must be independently audited to validate their annual financial report for a fiscal year. Various government agencies conduct these audits. 

Company audit is mandatory for publicly listed companies. On the other hand, audits are not legally required to be carried out for private companies. However, it is preferred to have the audit report of a company generated for a private enterprise for the following reasons:

• The investors can find out about the exact financial status of the company, which helps them decide whether or not to invest in that company
• When the stakeholders get authentic financial information about the company, they can buy more stocks, hold them, or sell them accordingly

• Banks can know whatever it’s suitable to grant loans or debts to that company based on the audit report of that company

For the audit, various financial statements are inspected, income statements are inspected, and the balance sheet and the cash flow statements are checked. The span of the audit depends upon how big the company is. A company audit can last for a few months to a whole year. Towards the end of the engagement period, the auditor makes a report on the accuracy of the financial statement.

The Types of Audits

A company audit is of different types. Audits are classified based on who is conducting the Audit and for what purpose it is being undertaken. Following are the types of an audit.

• Internal Audit

The internal Audit is conducted inside the company. The auditors in an internal audit are employees of the same company. They are not much focused on the financial statements of the company. They emphasise corporate governance and how companies’ operations are conducted. The audit report of a company from an internal Audit is not made public. The company’s executives and the audit committee look at this audit report. They can get an overview of how the organisation performs across various areas. Internal controls, risk management, and compliance are the factors that are emphasised in an internal company audit.

• External Audit

In external audits, people from outside the organisation are hired to form an opinion about the accuracy of an organisation’s financial reports. For the companies listed publicly, the audit report of the company is made available to the public, stakeholders, and investors. In the case of public companies, the results of an external audit are reported to the public. The audit norms are followed. Large companies hire big firms to carry out audits for their finances. External audits provide a fresh perspective that an internal audit can sometimes lack.

The Process of an Audit

The method of conducting an audit and time span can differ, but any audit is done in four basic stages:

• Planning stage

This is the first stage of a company audit. Here, details such as procedures, objectives, and level of engagement in a company are procured.

• Internal controls stage

This is the second stage of Audit, in which various financial records of a company are collected. 

• Testing stage

The testing stage is the third stage, in which the accuracy of the various financial statements is determined.

• Reporting stage

The testing stage is followed by the reporting stage, where the judgement on the financial accuracy is expressed.

Conclusion

Managing finances and maintaining the record for large enterprises isn’t easy. All money should be accounted for, and financial statements of all transactions exist. Audits have been designed for this same purpose, to check the accuracy of the financial statements of the organisations. Audits are of two types, an internal audit and an external audit. An internal audit is conducted by the employees of the same company. External auditors are hired in case of external Audit. An audit could generate a modified opinion or an unmodified opinion. The span of the audits depends on the size of the company.