Financial Audit

What is Financial Audit?

Financial Audit is independent examination of the financial statements of entity (profit-oriented or not) irrespective of the size of entity by auditors or audit firm to provide opinion regarding the true and fair view of the facts & figures mentioned in the financial statements of the entity and to obtain reasonable assurance regarding whether the financial statement is free from any material misstatement.

Explanation

The management of the entity draws up the financial statements of the entityFinancial Statements Of The EntityFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more for a period. This kind of such financial statements through statutory auditors is obligatory in nature for the management. As the auditors try to obtain reasonable assurance regarding that the financial statement of the entity has been prepared through specified criteria (i.e., international accounting standards, accounting principlesAccounting PrinciplesAccounting principles are the set guidelines and rules issued by accounting standards like GAAP and IFRS for the companies to follow while recording and presenting the financial information in the books of accounts.read more, going concern, etc.) and financial statements are free from any material misstatement. The auditors provide reasonable assurance, which cannot be considered as absolute assurance, but the financial audit adds credibility to the financial reportingFinancial ReportingFinancial Reporting is the process of disclosing all the relevant financial information of a business for a particular accounting period. These reports are used by the stakeholders (investors, creditors/ bankers, public, regulatory agencies, and government) to make investing and other relevant decisions. read more done by the management.

Financial-Audit

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If you want to learn more about Auditing, you may consider taking courses offered by Coursera

  1. Auditing I: Conceptual Foundations of Auditing
  2. Auditing II: The Practice of Auditing

Features

Procedures for Financial Audit

Below is the procedure to follow for financial audit.

  1. Planning and Designing of Audit Procedure


    Before performing this audit, it is fundamental for the auditors to create an audit plan for effectively covering various areas of an audit by acquiring knowledge of the client’s business, policies, accounting systems, internal control procedures.

  2. Examine Test of Controls (Internal Controls) and Transactions


    To reduce the control risks, the auditor performs a test of controls to check the effectiveness of applied controls over the organization and concerned area of data flow. AuditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more also verify the number of transactions entered in the books of accounts by using the substantive test of transactions technique and checking the completeness of the transactions entered.

  3. Testing of Financial Procedures and Performance of Analytical Procedures


    In both the cases when auditor founds about the weakness or strength of test of controls over the entity, they tend towards the analytical procedures and substantive test of detail method to overview the material financials transactions.

  4. Drafting and Issuing an Audit Report


    After the completion of the audit step to be done by auditors for gathering sufficient audit evidence, the auditor provides his opinion regarding the financial statement and internal control of the entity in his audit report and consolidates his audit evidence for safekeeping.

How to Conduct a Financial Audit?

Advantages

Disadvantages

Conclusion

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