Financial Audit Services
Performing financial audit
Financial audit concept
The financial audit is a set of necessary and interrelated procedures defined by the International Audit Standards that provide an independent view on the reliability of all materiality aspects of the financial reports, prepared in accordance with the legislation in force and applicable accounting standards by the audited entity.
Financial audit purpose
The financial audit purpose is to increase the confidence of the financial report users by expressing an audit opinion as to whether that report is prepared in accordance with the applicable financial reporting framework in all material aspects. Subject of financial audit: Financial audit is conducted on: annual or interim, individual or consolidated financial reports prepared in accordance with the applicable financial reporting framework; other financial statements or financial information.
Compulsory and voluntary audit. The Financial Audit is a Compulsory Audit – that is the audit of the annual financial reports to the extent required by the law or by the European Union law. Any other audit different from the mandatory one is voluntary.
Benefits of conducting a financial audit
SUPPORT OF ACCOUNTANTS
The best effect in this sense is, when the financial audit work begins before the end of the financial year, so that there is time to be performed, if some corrections are needed in the coverage of transactions or events.
MANAGEMENT SECURITY
Independent, highly qualified specialists – auditors, verify all processes and their correct reporting in the financial reports. They confirm the honest and faithful work of the accounting department and the compiler of the report. Thus the managers are confident that the reports represent a true reflection of the financial state.
PROTECTION OF OWNERS
Owners receive confirmation from an independent party about the reliability of the financial report, information on possible mistakes, misappropriations or frauds committed by persons employed in the company’s business, as well as its management.
RELIABLE INFORMATION
Sufficient and trustworthy information about all other stakeholders of the enterprise – financial institutions, investors, contractors, employers in certain competitions.
Additional information
In Bulgaria, an independent financial audit is performed by registered auditors as natural persons, through their enterprises or through specialized audit firms. The Institute of Certified Public Accountants creates and maintains a register of registered auditors, as well as controls their work. The Institute and registered auditors are subject to independent public oversight.
The registered auditor presents the results of the financial audit performed in an audit report. The audit report shall be prepared in writing in accordance with applicable auditing standards. Legal Framework of the Financial Audit Independent Financial Audit Act and the Accountancy Act.
The requirements for persons subject to an independent financial audit are defined in the Accountancy Act
Pre-engagement planning and research is best to take place before the end of the accounting year. During this period the client contacted the auditor, examined each other and negotiated the terms of the audit engagement. The auditor has the obligation to liaise with the previous auditor if the client has one.
Once everything has been agreed, it goes to an independent financial audit, and it can not begin without the following two documents:
- a written agreement between the audited entity and the auditor in which the remuneration is agreed, deadlines for execution, and a responsible auditor for the audit.
- Letter of Commitment – Re-negotiating the applicable standards on which the financial statements, rights, obligations and responsibilities of the parties will be prepared and audited.
Once the engagement is accepted, it goes to the actual process of verifying the fair and fair presentation of the financial position in accordance with applicable accounting standards and current legislation. To this end, it is necessary to gather facts and evidence of the existence and occurrence of certain assets and liabilities, their valuation and presentation in the financial statements.
- Planning – Drawing up a strategy for collecting facts and evidence to reduce audit risk. Define all business cycles in an enterprise, identify the risks for each one, and plan audit procedures by type, scope, and duration; (Inherent risk – the likelihood of errors, violations and frauds pertaining to the particular environment, industry, company, Control risk – this is the possibility that the control system does not reveal the errors)
- Performing audit procedures to verify all statements in financial reports – include checks of documents certain facts and evidence tracking processes in the company, interviews with participants in business processes, check the internal control system and analysis of all this.
Some of the most significant audit procedures are confirmation of the availability of assets, liabilities and equity, the validity of transactions, establishing ownership and belonging, identification of assessment methods, completion of income and expenses, presentation and disclosure of various information in the financial statements. Audit procedures could be divided into two groups:
- control tests to evaluate the control system – whether the systems work correctly, for example, what is the probability that the accounting software will give some error when posting, reporting, etc;
- detailed tests (substantive verification) – analytical procedures, on-the-spot checks, confirmations, recalculation and comparison
Analytical procedures include checking balances and checking turnover (accounting entries) and aiming to confirm the integrity of all existing and reflected balances, as well as the correct and accurate accounting of accounting documents during the period.
All facts, evidence and worksheets are collected in the course of all planned audit procedures and must be sufficiently substantial and of sufficient scope and quantity to adequately support the audit opinion.
Once all the collected facts and evidence have been investigated, they are analyzed and, if necessary, additional risks are transferred to more in-depth audit procedures.
After completion of all audit procedures and analysis of audit evidence collected, some recommendations for adjustments and additional disclosures in the financial statements may be made if necessary. When the audit process started in the reporting year, recommendations and corrections are made in a timely manner and significantly less. Once everything has been agreed, the auditor’s report is being prepared. Depending on the issues identified and the degree of assurance to confirm the integrity of the financial statements in all its aspects, the auditor may issue several types of audit report. It is the type of audit opinion that is the assessment of the report. These are the types of audit reports.
After completion of all audit procedures and analysis of audit evidence collected, some recommendations for adjustments and additional disclosures in the financial statements may be made if necessary. When the audit process started in the reporting year, recommendations and corrections are made in a timely manner and significantly less. Once everything has been agreed, the auditor’s report is being prepared. Depending on the issues identified and the degree of assurance to confirm the integrity of the financial statements in all its aspects, the auditor may issue several types of audit report. It is the type of audit opinion that is the assessment of the report. These are the types of audit reports.
