Auditors’ jobs are very important. They help firms assess internal guidelines and policies, evaluate operating performance, and determine whether the policies are in line with the regulatory procedures and requirements. Aside from that, they also evaluate the financial reporting process and accounting tools and systems as a way to determine whether the financial statements are accurate or not. With that, certain auditing processes should be taken into consideration. These are:
* Review the operating environment
* Internal controls testing
* Account testing and detailed balance
* Analytical procedures
* Risk assessment
An auditor’s job is to evaluate the business entity’s operating environment. This would allow him to determine the crucial factors that affect the operations. This could range from internal to external, and short to long-term factors. Likewise, an audit specialist should also review the organization’s activities and ensure that most of these are legal and comply with the regulatory rules set by the government. For external factors, this could be comprised of governmental mandates, business practices, industry trends, as well as economic sector outlooks. On the other hand, internal elements that could have an impact on the company’s activities could be senior management’s leadership ethics, style, human resource procedures, safety policies, or occupational health.
Auditors should also review the firm’s policies, procedures, and internal control. Aside from that, they should also evaluate the operating performance, detect risk trends, and determine the human resource guideline. They must use the operational knowledge in order to evaluate the efficiency and the control designs. Controls are specifically and adequately designed if goals, decision-making processes, and step-by-step procedures are clearly presented. This is considered to be very important, because effective controls could prevent the occurrence of mistakes and flaws for which they are designed. With that, auditors are tasked to focus on controls in “high-risk” areas and cooperate with segment managers as a way to correct the deficiencies detected. For example, an auditor could review the plant’s safety handbook, assess detailed step-by-step procedures and give advice to the management, asking him to modify the procedures, because they don’t follow the regulatory guidelines one must comply with.
An auditor’s job is to give extra attention to detail on balances and accounts. They should monitor if the operating procedures and controls are either weak or high. Whatever the findings may be, they should report these financial statements, especially if it seems to be inaccurate. Aside from that, they could also focus on the income statement key accounts or balance sheet instead. This could be expenses, sales, accounts receivable, accounts payable, and cash. The balance sheet is a type of financial statement that presents the firm’s debts, assets, and owner’s equity at the end of each quarter. Furthermore, the income statement should also present the firm’s revenues and loses periodically. For instance, an auditor should review the details of a firm’s revenue account in order to verify if the sales and customer discounts are accurately recorded, without any discrepancies.
Analytical procedures help the auditors in determining and confirming the relationship between balances or financial statement accounts, compare current and historical data, assess key operating trends, and assess accuracy in financial reporting. Additionally, auditors should also ensure that the financial information is thoroughly prepared and reported professionally in accordance with accounting principles, as well as regulatory guidelines generally accepted in industries in which the organization is currently operating. For instance, an auditor should know that receivables, sales, and non-collectable accounts in the balance sheet are linked to each other. Then, he should verify whether these sales revenues, excluding the discounts, are really consistent with the non-collectable amounts as well as the customer receivables.
Auditors evaluate if the business is at risk, through reviewing the internal controls, guidelines, internal policies, and deter risk trends in a firm’s segment. They’re tasked to work in accounting, risk management, and even in the corporate finance departments in order to evaluate the risks and exposures across activities and business lines like operational and financial risks. Keep in mind, the financial risks are always market-and credit-related. This risk is associated to losses incurred because of price fluctuations in securities markets, and business partners because of bankruptcies. On the other hand, operational risk is comprised of information systems, reputation, and regulatory and legal risks. The auditor should evaluate the firm’s risk profiles and delegate “low,” “medium,” and “high” ratings of areas evaluated and designate testing resources.
Alya Auditors provide accounting and auditing services to a variety of industry sector clients, ranging from corporate setups to multinational enterprises, in order to improve the consistency, efficiency, and effectiveness of their business operations.
We keep you compliant with all statutory requirements, protect your assets from a variety of threats, and ensure that your business operations are effective and in compliance with all applicable laws and regulations. Contact us today!