Financial Auditing Diagnoses True Position Of Business

The independent assessment of the financial records of a business enterprise

, whether it is running for the purpose of earning profits or not and regardless of its size, nature and form of ownership is referred to as financial audit. It deals with the issues concerning recording of business transactions and analyzing the financial statements of the company. The function of financial auditing also involves giving opinions regarding the competence of internal controls in an organization. In the earliest civilizations, the auditor used to, verbally, look after the procurement and clearance of the goods of the master for a particular time frame. With the introduction of different forms of writing, the auditors started recording transactions in the books of accounts. This process came to be known as bookkeeping.

The auditing process convoluted in the Greek and Roman civilizations. The auditors were employed to check the books of accounts of their masters and be accountable for the accuracy of these accounts. Thus, from that time till present, the scope of financial auditing has vastly widened. The basic motive of financial auditing by reviewing the financial statements is to disclose the true standing of a business entity in front of the internal as well as external bodies. It also fulfils the objective of identifying mistakes and fraudulent activities and taking measures to prevent them in future. However, the management is liable to detect as well as prevent errors and frauds but the auditor while analyzing the financial transactions is likely to come across these blunders. In this case, auditor inspects these swindles and gives suggestions to the management as how to control these types of activities.

The process of conducting the financial audit is completed in four stages. First is the preliminary phase in which the auditor or an auditing firm analysis the circumstances of the business concern, determining the requisite skills and competence level and quoting the terms of this process. In the next step, auditors plan out the approach to be followed by acquainting themselves with the organization, gathering the books of accounts already prepared to judge the materiality position, taking into consideration the inbuilt risks and deeply understanding the accounting system and internal controls. The third stage involves checking whether the auditing process, thus, planned complies with the auditing principles or not. In the last step, the process is carried out, evaluation of accounting information is done, conclusions drawn and reports prepared.

If a business establishment employs the independent auditor to perform financial audit, then it is surely to gain lots of advantages from this. Firstly, auditors will provide valuable advice to improve the efficiency of the organization and to raise its profit margins. The well audited financial records of a company proves to be a dependable and useful source of information for the parties interested in it such as banks, investors, shareholders, creditors, government authorities and so on. These financially audited statements also form the basis of evaluating the net worth of the business and settling of the liabilities. The auditor, after carrying out the financial auditing of the company, can propose steps for enhancing the accounting system of the organization.

by: dasuk

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