How does an audit work in an organization?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

An audit of an organization is a set of measures to assess the reliability of financial statements and their compliance with legal requirements. The check ends with the formulation of a conclusion about the correctness of accounting at the enterprise. Let us consider in more detail the features of organizing and conducting an audit.

Classification

There are different types of organization audit. Classification is carried out according to various criteria. Depending on the category, an independent, internal, state financial audit of the organization is distinguished.

In the first case, the verification is carried out by a third-party company in accordance with an agreement concluded with the management of the enterprise. A special service operating in the structure of the company is responsible for organizing internal audit. State verification is carried out by authorized government agencies.

Depending on the profile of the enterprise, the audit can be general, insurance, banking, etc.

Also checks are voluntary and mandatory. In the first case, the initiator is the head of the enterprise. Healso determines the timing and scope of the audit.

Organizations specified in the legislation are subject to mandatory audit.

Regulatory framework

The concept of auditing an organization, duties, responsibilities, rights, requirements for attestation of companies conducting audits are enshrined in Federal Law No. 307.

Besides, in accordance with the said normative act, federal auditing standards have been adopted. They fix the procedure for performing the check, uniform norms for the procedure. The rules are the same for all participants in the audit activity.

The standards explain the principles of verification, the procedure for issuing a conclusion. They define the methodology, depth, scope of auditing organizations.

In addition to domestic, there are also international standards. They establish requirements for the quality of the audit, define goals, provide lists of necessary documentation and rules for issuing conclusions.

Regulations for auditors

Checking reports can be carried out by specialized organizations or private specialists. The latter are subject to a number of requirements. A private auditor must, firstly, be a member of an accredited self-regulatory organization. In addition, they must have:

• higher legal or economic education;
• work experience as an assistant auditor or chief accountant for at least three years;
• Auditor's certificate (issued based on the results of passing a special exam).

The legislation also enshrines a number ofrequirements for audit firms. The organization must be, firstly, commercial, and secondly, formed in any form, with the exception of OJSC. The staff of such a company must have at least three specialists. At the same time, at least 51% of its authorized capital must be owned by auditors or other similar organizations.

Subject of verification

In organizations subject to audit at the initiative of the head, control is exercised only on issues specified in the contract. For example, a check can be performed in relation to only cash transactions, accounting for fixed assets, intangible assets or current assets, settlements with counterparties or the budget. Accordingly, the specialist will evaluate the correctness of execution of only certain categories of documents.

In organizations subject to mandatory audit, all financial documentation and accounting statements are checked. In this case, the company must provide all available papers that are related to its business activities. Since such an audit of the organization is carried out by representatives of government agencies, it is impossible not to fulfill their requirements.

Compulsory verification

Audit is not mandatory for most companies. As a rule, government agencies are involved in checking the accounting records of large companies, including those using public funds. Mandatory audit is aimed at reducing the risk from the actions of unscrupulous firms, ensuring the protection of the interests of citizens and the state. It is usually performed once ayear.

List of enterprises subject to mandatory inspection

An annual audit of an organization's accounting is carried out if:

• The enterprise is a joint-stock company. It should be noted that in accordance with the latest amendments to the legislation, the audit is carried out in relation to all business entities, regardless of the type, type of activity, financial indicators. Accordingly, the audit is carried out both in CJSC and OJSC.
• The company's shares are listed on the stock exchange.
• The enterprise publishes or submits its reports to the competent government agencies. The exception in this case are government agencies.
• The organization is a credit, insurance, clearing, non-state fund or uses the financial resources of the population.
• The volume of profit for the previous year exceeded 400 million rubles. or an asset in the balance sheet at the end of the period is more than 60 million rubles.

This list is not closed. Other cases of conducting a mandatory audit may be fixed in the legislation. It should be noted that only audit firms have the right to check these entities.

Timing

The duration of the verification period for a voluntary audit of the organization's activities is determined in the contract. Deadline depends on:

• Enterprise scale.
• Presence of representative offices, branches.
• Duration of activities.
• Volume check.
• Quality of record keeping.

Ifmandatory verification is carried out, then the period is established by law and regulations. As practice shows, the audit of the organization's statements in this case takes an average of 1-2 weeks. There are cases of longer checks, but they rarely last more than two months.

Steps

Audit involves 4 interrelated stages:

• Preview of the enterprise.
• Planning.
• The main stage (actual verification).
• Formulation of conclusions.

Preliminary activity

At this stage, the auditor examines the constituent documentation, assesses the risks based on:

• Specifics of the enterprise.
• Indicators of the financial situation, production growth rates.
• Staff turnover.
• Accountant qualifications.

Test planning

This stage is considered one of the key in the activities of the auditor. Planning includes 3 stages:

1. Conclusion of an agreement with the customer. During this stage, the terms, the cost of the audit, the number of specialists are discussed.
2. Planning. It includes defining a validation strategy.
3. Development of the evaluation program. During this stage, measures are formulated, reporting sections are indicated that are subject to deep and superficial verification.

Process progress

During the direct study of the documentation and its evaluation, the auditor must adhere to the requirements and standards. Specialist carries out:

• Collection of evidence, i.e. primary documents reflecting the facts of transactions, information from third parties, etc.
• Assessing the results of the sample.
• Studying reporting metrics.
• Assessing the degree of materiality.
• Determining audit risk.
• Assessment of the compliance of financial transactions performed with legal requirements.
• Other actions necessary to formulate sound conclusions.

Filing a conclusion

At the end of the audit, the auditor draws up an official reasoned document. In it, he expresses his opinion on the compliance of reporting with legal requirements.

The conclusion is necessary for internal and external users to form their own idea of the financial position of the enterprise. The information in this document will help you make the right management decisions.

Conclusion could be:

• Unmodified. It is also called positive. In such a document, the auditor indicates the absence of violations in the company's financial statements.
• Modified. This type of conclusion is divided, in turn, into 2 subspecies: an opinion with a reservation and a negative conclusion. The first is compiled if the specialist has identified some violations, but they do not have a significant impact on the reliability of reporting documents. Accordingly, a negative opinion is formed if the violations are significant.

In addition, the auditormay refuse to express its opinion on the verified documents. This situation is possible if the specialist did not receive the necessary evidence during the audit. For example, the assessment was carried out in relation to only one area of reporting, the organization refused to provide documentation, etc.

Organization of internal audit

Any leader is interested in ensuring proper control over the efficiency of the company's structural divisions and the conscientiousness of the performance of their duties by their employees. The most important element of management is on-farm (internal) audit.

The objectives of control are:

• Minimizing risks and maximizing the organization's profits.
• Improve the effectiveness of decisions regarding the use of enterprise resources.

Internal audit is an activity regulated by local documents related to the control of different areas of the company.

To implement this task, an audit service is being formed at the enterprise. The number of its employees depends on the volume and nature of inspections. In small enterprises, internal audit can be carried out by 1-4 employees. In large firms, the staff of the audit department is quite large. At the same time, the duties of individual employees may go beyond accounting. For example, employees can conduct assessment, technology, environmental audits, etc.

Key conditions

Proper organization of audit in the enterpriseis impossible without the implementation of a set of measures, including:

• Drawing up projects for the organization of internal audits by industry and areas of work. They should clearly indicate the specific functions of responsible persons, the rules for their interaction with other departments and the management of the enterprise, the status of internal auditors, their responsibilities, duties, rights.
• Establishment of qualification requirements for employees of the audit service.
• Development and definition of rules for introducing standards, guidelines, norms into the activities of the audit department.
• Development of programs for professional development and training of internal auditors.
• Forecasting staffing needs.

Varieties of internal audit

The most common division of audit into operational, financial reporting and compliance.

In addition, allocate checks:

• Organizational and technological.
• Functional.
• Control systems.
• Activities.

Functional audits are performed to evaluate efficiency and performance. For example, verification can be carried out in relation to transactions performed by an employee or department in the context of its function.

Organizational and technological audit involves the evaluation of the work of various parts of the management system. During such a check, the technological or organizational feasibility of their presence and functioning is established.

Cross-functional audit aims to assessthe quality of certain functions. For example, the efficiency of production and sales, the effectiveness of the relationship and interaction of departments responsible for these areas of work are analyzed.