What Are the Practical Steps in a Statutory Audit?

Laws mandate that a statutory audit checklist be used to assess a company's financial statements. The checklist tracks whether the financial statements give an accurate and fair picture of the company's current situation.

Conducting a statutory audit professionally is a complex process that calls for the specialized knowledge and experience of Chartered and Certified Public Accountants.

The Process of Statutory Audits

A statutory audit usually follows a methodical process to guarantee accuracy and comprehensiveness. This is a quick synopsis of the procedure:

1. Planning: During this phase, the auditors become acquainted with the business operations, industry, and possible risk areas of the client. This is essential for carrying out audits effectively and efficiently.
2. Internal Control Evaluation: Auditors check to ensure the company's internal controls are reliable and robust. A weakness could increase the likelihood of financial errors.
3. Substantive testing: Substantive testing involves comprehensive testing of the business's balances and transactions. Auditors use numerous analytical techniques, such as balance reconciliation and transaction validation, using source documents.
4. Reporting: After the audit is finished, the auditors compile their findings into a report. The report will state whether the financial statements present a true and fair picture of the company's financial situation.

The Essential Steps in a Statutory Audit Process

1) Agreement before audit

Before the audit, your auditor must verify that you have completed all required due diligence and review your anti-money laundering records. Details like the audit's purpose and scope, deadlines, the auditor's fees, and the party's respective obligations are all spelt out before a letter of engagement is issued and signed.

2) Risk evaluation and audit schedule

To identify any possible concerns, your auditor will compile an overview of your past audit history, historical issues, collated accounts, and operational and financial controls and procedures. Once hazards have been detected, they can be considered or recorded, and a fraud risk rating (low, medium, or high) can be determined. Resources will be allotted, and planning and performance materiality will be evaluated and determined.

3) Review of internal financial reporting

Your auditor will need to see several papers, including your financial reporting policies, accounts, and financial statements, to guarantee accuracy and validity. They will also evaluate whether your internal controls are sufficient at this point and whether a larger sample size will be required during the audit. Systems and practices for accounting and data storage will also be assessed.

4) Fieldwork

The core of your audit is this extensive fieldwork phase, which entails a thorough "deep-dive" into your financials through analysis, research, computations, and cross-referencing of your data. With your primary accounts, your auditor will also need access to documents and digital data, such as bank statements, contracts, and invoices. Your auditor may also review your tax records to ensure your tax filings and payments tally up.

5) Mandatory reporting

Presenting results in the form of an audit report is the last stage of the audit process, which happens when all samples, tests, and investigations are finished. This document will include your audited statements, an outline of internal procedures, and the specifics of the agreements and duties agreed upon earlier in the journey. Your auditor's summary of findings, presented as an "opinion" at the end of your audit report, will typically be stated as follows:

• unaltered viewpoint. According to the auditor's assessment, your company's financial statements are current and fairly reported.

• altered viewpoint. Significant misstatements were found throughout your auditor's inquiry, or there wasn't enough data to confirm accuracy or dependability.

The following elements are included in the audit report:

1. The introduction lists the audited financial statements and the auditor and management's roles.
2. The paragraph on scope outlines the audit's parameters as well as the procedures that were followed.
3. The opinion paragraph expresses the auditor's assessment of the financial statements. The auditor may issue a disclaimer of opinion, an adverse opinion, a qualified opinion, or an unqualified opinion.
4. The paragraph that follows outlines the foundation for the auditor's opinion.
5. Additional paragraphs could contain any discovered material misstatements, important audit issues handled throughout the audit, or any further data the auditor feels the report should include.

How to be ready for the required financial audit?

This is a quick reference guide to assist you in getting ready for your required financial audit.

1. Assign the best-suited team member or members to supervise or support the audit process. Verify that internal resources are available to cover any gaps and that the audit timeline and scheduled leave do not conflict.
2. When required, contact stakeholders and board members to update them on developments and give them a chance to request any further investigations they would like the auditor to carry out.
3. Compile your information. After you and your auditor have decided on the scope, you must gather all the necessary information and have all the required paperwork ready for them in the predetermined format. Financial records will be regularly organized and updated in a well-oiled accounting team, so everything should be almost ready.
4. Recognize and draw attention to any transactions that your auditor might identify as deviating from standard operating procedures. Make sure you have all necessary supporting documents on hand to facilitate a quick assessment.
5. Make inquiries! Ask questions if you have any; if everyone agrees, the audit process will go much more smoothly. Please feel free to ask questions if you need clarification about any of the methods in the audit process, what you need to do to assist your auditor, or anything else. 

Conclusion

One essential approach for guaranteeing the dependability and correctness of financial statements is the statutory audit procedure. The process has three stages: reporting, execution, and planning. During the planning stage, the auditor determines the main audit areas, evaluates the risk of material misstatement, and creates an audit strategy. 

During the execution phase, the auditor examines the financial statements, checks the internal control system, obtains audit evidence, and reports the results to the client. The auditor creates the audit report, reveals any serious misstatements, and offers an opinion on the financial statements during the reporting period.