When someone outside examines the business.
WHAT AN AUDIT IS
An independent examination of financial statements, resulting in an opinion.
WHAT IT IS NOT
A guarantee that no fraud exists An examination of every transaction A review of whether the business is well run
WHY THAT MATTERS
Businesses assume audit detects fraud, and its scope is narrower.
WHAT AUDITORS EXAMINE
Whether the financial statements are materially correct Supporting evidence, on a sample basis Controls, to the extent they rely on them
WHAT MATERIALITY MEANS
A threshold below which errors do not change the overall picture.
WHY IT MATTERS
Losses below that threshold may not be detected.
WHO REQUIRES AUDIT
Depends on size, structure and sector, and sometimes lenders or investors.
WHAT TO ESTABLISH
Whether your business is required to be audited.
WHAT PREPARATION REQUIRES
Complete and reconciled records Supporting documentation available Explanations for significant items Someone available to answer questions
WHY PREPARATION MATTERS
Poorly prepared audits cost more and produce findings.
WHAT AUDITORS WILL ASK FOR
Ledgers and reconciliations Bank confirmations Supporting documents for samples Confirmations from customers and suppliers Evidence of stock counts Explanations of unusual items
WHAT TO PROVIDE
What is requested, promptly and completely.
WHAT TO NEVER DO
Provide altered documents Conceal information Instruct staff on what to say
WHY
It is detected, and it converts a difficulty into a serious matter.
WHAT A MANAGEMENT LETTER PROVIDES
Observations on control weaknesses.
WHAT TO DO WITH IT
Act on it.
WHY
Repeated findings indicate that nothing was done.
