When trying to understand the benefits of statutory audits, transparency is perhaps a great place to start. Companies should always strive for legal and financial compliance in their operations. And from the perspective of shareholders and investors, such an audit is a great way to show that your company is indeed serious about transparency.
An annual statutory audit refers to the thorough examination and inspection of a company’s financial statements and records. The government mandates it as a requirement and organizations should conduct it regularly to ensure accuracy and adherence to accounting standards and regulations.
Benefits of Statutory Audits in an Organization
The relevance of an audit in an organization is significant. It verifies the accuracy of records and statements, which organizations can present to the public. It also ensures that companies are complying with rules and regulations during their business activities. Furthermore, the audit confirms that the organization maintains a clean image by examining bank balances, accounting records, work conditions, internal systems, and other relevant factors.
Essential Requirements of a Statutory Audit
To successfully reap the benefits of statutory audit, it is advisable for organizations to seek the assistance of a reputable auditing firm such as Nair and Nelliyatt. By partnering with an experienced auditing firm, the organization can avoid potential complications that may arise during the audit process.
The duration of the auditing process varies from one organization to another, depending on factors such as the size and nature of the organization. To facilitate a successful audit, the organization should provide the following details to the auditing firm:
- Fixed asset details
- Bank account statements including credit and debit transactions for the requested period
- Details regarding secured and unsecured loans if any
- Trade receivables and payables
- Purchases and sales of all local, imports and exports
- Details of inventory
- Tax records, along with statutory dues and duties
- Expenses incurred in selling and administration
- Forex profits and expenditure details
Preparing for the Audit
As conducting this audit is essential, it is important for your organization to diligently carry out the process in order to reap its benefits. Here are some steps organizations should consider for a successful audit:
Organizing Financial Documents and Records:
Companies must ensure they update their financial books accurately and in a timely manner. This includes keeping bank statements, invoices, and receipts updated according to the required standards.
Proper Communication with the Auditor:
Timely and effective communication with the auditor is another critical step during the preparation stage of the audit. Companies should provide all necessary information and promptly address any queries raised by the auditing organization. The exchange of relevant information and establishing clear communication channels is imperative in this step.
Identifying Potential Audit Issues:
Companies or auditing firms should proactively identify potential audit issues and areas of concern before conducting the audit. This includes evaluating the accuracy and completeness of financial records, and ensuring compliance with applicable laws and regulations.
By following these steps and ensuring compliance with auditing standards and regulations, your organization can facilitate a smooth and successful audit, leading to accurate financial reporting and improved transparency.
Conduction of the Audit
Outlined below are the important steps for conducting an audit:
Audit Procedures and Techniques:
In this step, the auditor performs various procedures to gather accurate data required for the audit. This includes analyzing financial data, testing accounting systems and controls, and reviewing supporting documents. The auditor should also consider industry-specific threats and challenges when analyzing the financial data.
Assessing Internal Control and Processes:
It is crucial for a reputed auditor to assess the organization’s internal control and processes to ensure their effectiveness in detecting and preventing errors or fraudulent activities. This involves reviewing the company’s policies and procedures, assessing the design and implementation of internal controls, and testing their effectiveness. Any errors or flaws identified during this process are promptly communicated to the management of the organization.
Testing for Considerable Misstatements or Frauds:
This step involves assessing the risk of fraud and conducting tests for identifying indicators of illegal activities. The audit team also reviews related party transactions. Fraud discovered during the audit is reported to the audit committee or management for appropriate action.
Evaluating Accounting Estimates:
The accounting estimates and their suitability is evaluated to ensure they are reasonable and aligned with the applicable accounting standards. If any fraud is detected during this stage, it is reported to the audit committee or management for further investigation and actions.
Resolving Audit Findings
Here are some of the main steps which can be taken to resolve audit findings:
- Reviewing and responding to audit findings
After completing the audit, the auditing firm should present a detailed report to the management. It helps the management to review the report and take action or respond to any prevailing issues promptly.
- Creating Action Plans to Address Issues
The management should come up with a solid plan to address the errors or frauds found in the audit. This will include:
- Executing new control measures
- Refining existing processes
- Taking corrective measures
- Effective Communication with Stakeholders and Regulators
The company’s management should also communicate with key stakeholders regarding any significant findings or issues found during the audit.
Benefits of Statutory Audits
An audit enhances the integrity of financial statements, instilling confidence and trust among stakeholders. It also assists in identifying internal control flaws and operational inefficiencies, leading to improved risk management and process enhancement. Additionally, the audit acts as a magnet for investment and financing opportunities, boosting the company’s status and financial standing. By reducing risks and identifying growth opportunities, it paves the way for the organization’s sustained growth and success.
As we have explored the various aspects and advantages of conducting an audit, it is vital to highlight the significance of choosing the right auditing firm to truly maximize the benefits of statutory audits. When selecting an auditing firm in the UAE, it is essential to consider factors such as reputation, experience, and the qualifications of the team. At Nair and Nelliyatt, we take pride in being one of the premier auditing firms in the UAE.
Our team comprises seasoned auditors and finance professionals who possess extensive expertise in preparing accurate financial statements, managing internal processes, and maintaining meticulous transactional records, among other areas. We provide organizations with a systematic and well-structured approach to evaluate and enhance risk management, control, and governance procedures.
If your firm has any queries related to statutory audit or benefits of statutory audit, drop us an email at firstname.lastname@example.org or call us at +97143577678.