Audit is a term that comes from the English “to audit”, which means to examine, adjust, correct, certify. That's the purpose of the audit, to examine something.
Thus, as accounting works with the recording of events that interfere with a company's assets, therefore, the audit, inserted in the accounting context, serves to examine and certify the veracity of the records made by accounting.
In addition, the audit also serves to check all the facts and operations that happen in the company and that converge in the accounting. In practical terms, it is up to it to assess whether the procedures are in accordance with accepted practices and, in this way, identify ways in which those responsible can intervene.
Want to know more about it? So, be sure to follow the text until the end.
What are the reasons for doing an audit?
There are cases in which companies are legally required to undergo independent audits, whether semi-annual or annual. These audits must be carried out by independent auditors, that is, by professionals who are not part of the entity being audited.
Furthermore, there are situations in which the company itself chooses to carry out the audit. Some reasons are:
On the need to improve procedures, as the audit makes it possible to define the risks that may intervene in governance. Therefore, it serves for the company to deepen its knowledge about processes and controls;
In the prevention of errors and fraud, when the idea is to evaluate the efficiency of the controls used by the company and if its activities are being carried out as planned ;
In the credibility conference, seeking to verify if the numbers presented by the accounting are really compatible with the reality of the company. In this case, both records and transactions are evaluated.
What are the audit models?
More generally, it is customary to divide auditing into two types: external and internal.
In the first case, the external audit, outsourced auditors act to attest to the legitimacy of the data of a given entity. Internal auditing, in turn, takes place when auditors who are employees of the company itself seek to verify the degree of security of internal processes.
Internal audit
Subordinated to the interests of senior management, internal auditing involves accounting or financial investigations and the review of processes of an internal nature, as well as policies and regulations established by the company.
Those who carry out these activities are the company's own employees. They are the ones who analyze the procedures, internal control practices, regulations, in addition to evaluating the records. The idea is to improve the different routine processes, work on correcting possible failures and monitor business activities.
In internal auditing, the main objective is to find ways to ensure compliance with regulations, rules and internal corporate policies. To this end, the evaluation results in a report of recommendations on a permanent basis.
External audit
In the case of the external audit, the work is carried out by independent auditors, that is, companies that are highly knowledgeable in this type of analysis and that offer a specific service.
This procedure aims to make the company's financial, equity and accounting data valid in a particular period, guaranteeing shareholders and managers greater security in relation to the enterprise, as well as protection of the company's assets.
In the external audit, the main focus is on proving the veracity of the data. For that, the final document is a technical opinion that can be done periodically.
What are the types of audit?
Understanding the audit as an essential element in terms of a management solution within a company, it is also important to know that this inspection has different types, many of them capable of complementing each other.
As the audit evaluates the activities developed by the company, in order to give it the proper adequacy in relation to the previously established values, it is important to think of this resource as a useful tool for different purposes. Thus, we have, for example, accounting, operational, systems, quality and environmental auditing. Learn more about them.
Accounting Audit
It focuses on the company's equity. The accounting audit is responsible for carrying out a thorough analysis to check whether the organization's assets are being managed in accordance with the guidelines created by the company. In addition, with this analysis it is possible to verify whether the actions have respected accounting principles. The result of this audit is to give the company conditions to reduce its corporate improbity rates.
With the analysis of the accounting documents, it is also possible to check if the account of the financial statements is compatible with the financial, economic and patrimonial situation of the organization. Through specific techniques and procedures, the analyst verifies that the accounting records are in order, as well as the internal controls of the company to be audited.
In addition, the accounting audit can identify events that have compromised the company's assets, through examination of accounting records.
Financial audit
Financial auditing, on the other hand, is responsible for working with values, that is, ensuring that the existing physical values are compatible with the balances recorded in bank statements, as well as in accounting records and in the cash register.
This process also involves the analysis of all the company's financial transactions, for example, checking whether the money is being correctly applied and whether the company's financial department has sufficiently efficient checks to carry out the due control against fraud and different irregularities.
Basically, financial auditing finds ways to increase the degree of confidence in the statements by users. For this, the most diverse processes of the department are mapped, among them we can mention bank transfers, payment of suppliers, reconciliations, among others.
Thus, with the financial audit it is possible to have benefits, such as ensuring the efficiency of financial control, making it difficult to take actions that compromise the company's cash flow, contributing to compliance with tax laws, ensuring greater security in the internal controls of the financial department and presenting solutions that are more measures, such as the implementation of a financial management system.
Tax and Tax Audit
The main task of the tax audit is to ensure that the tax obligations of a company are being fulfilled in accordance with the legislation. Thus, the fiscal aspects and everything that involves the administrative management of the company are analyzed.
It is through the tax audit that the company meets the conditions to avoid tax errors. In addition, by exercising adequate control of legal proceedings, this feature makes it possible to also recover improperly paid taxes.
It is worth remembering that one of the characteristics of Brazilian tax legislation is its complexity. Without good control over legal issues, the company tends to become an easy prey for the high tax burden present in the country and, therefore, have greater difficulties in carrying out its activities.
This type of audit is essential to guarantee the company conditions to exercise proper tax management , preventing spending on taxes, fees and tariffs from evolving like a snowball and interfering with the pursuit of its objectives.
Environmental Audit
It is an environmental management tool. Its logic is inserted within the need for companies to assess environmental liabilities in mergers and acquisitions processes.
Environmental liabilities require large costs, not to mention that environmental damage, in addition to financial losses, are very harmful to the company's image. Thus, the environmental audit represents a way for organizations to systematically verify the care with the environment.
Through this audit, it is possible to know whether the audited entity's environmental conduct or environmental performance meets a set of previously established criteria, which comply with current legislation.
Problems such as lack of control in relation to the environmental impact of activities, risks of breaches in compliance with regulations, among others, can be identified in this process.
Operational Audit
The idea behind an operational audit is, together with the management staff, to provide advice on the performance of management functions and responsibilities, always in line with the planning and work program.
The operational audit assesses whether the goals and objectives are being achieved by the company, considering its different departments, the activities they carry out, the systems (ERP), their controls, their functions and operations.
Special attention is given to the so-called “3 Es”: efficiency, economy and effectiveness. Thus, the general objective can be broken down into several specific goals, such as:
Search for flaws and irregularities present in the operational cycle;
Compatibility between administrative operational actions and policies, plans and guidelines;
Identification of causes of inefficiency or waste;
Validation of the performance of the audited sector, as well as its operational cycle;
Verification of the adequacy and effectiveness of internal management controls.
In summary, the performance audit serves to provide all members of the administration with subsidies to improve management, seeking efficiency through economy to achieve effectiveness.
How to prepare for an audit?
Auditing is a resource that must be present in the reality of any company, as it offers managers the guarantee that the processes are being carried out correctly, that is, done in an optimized way and in compliance with the legislation.
Work with an annual plan
Start with an annual activity plan. In it, indicate which areas should go through the process and identify the reasons.
It will be up to the company's management group to approve the plan with the start and end dates of the audit, as well as the meetings and the deadline for the final report to be issued by the auditor.
Once the audit day is scheduled, it will be unique to that activity. With the entire team aware of this, the company can better organize itself so that this day is not a problem from a productive point of view.
Formalize the processes
Prepare documents to better explain the purpose of the processes, as well as the responsibility of each employee. Also work on building a team capable of providing the necessary clarifications to employees regarding the procedures to be carried out in the work environment. Be sure to also work with the team and supervise the auditor.
Choose between internal or external audit
Hiring a company specialized in external Auditors in UAE, you can count on personalized reports, security and help to obtain significant data to evaluate the processes.
With internal auditing, in turn, you can train your team so that they can act in a more specific way for your type of business.
In any case, opting for the most specific solution in relation to the needs of your company and having quality professionals is essential.
Establish a schedule
Organize your team so that it works according to the previously prepared calendar. So define points like:
activities and processes to be evaluated;
date and time for carrying out the audit;
auditors' names;
names of those involved;
names of those responsible to resolve doubts.
Take tests
It is possible to run simulations even before starting the audit. Thus, the auditor can test the internal controls in order to certify that the level of security is really adequate to the needs of the enterprise.
Different tests can be applied depending on the characteristics and requirements of each department, as well as the company as a whole. It is according to the specific characteristics that it will be possible to determine the level of risks, as well as the processes and internal controls of the company. Some examples are compliance testing, substantive testing and analysis of different scenarios.
In compliance tests, it is up to the auditor to check if the internal processes are in order, verifying that the team is complying with the rules. In the case of substantive tests, the auditor seeks evidence about negotiations to arrive at an opinion on specific events. In the analysis of different scenarios, the auditor evaluates different situations for the application of tests, analyzing records and documents or identifying inconsistencies in internal controls.
How to perform an audit?
Regardless of which audit will be performed, it is important to follow a roadmap that includes everything from the identification of the company's processes to the evaluation of results. This can be done as follows.
Start by mapping business processes
If you do a financial audit, for example, look at the financial sector. Go on to list and identify the company's financial practices, such as cash flow management, payment of suppliers, control of accounts payable and receivable, collections, reconciliations and transfers, among others.
Create a task map to make the flow of financial processes more clearly visualized.
Identify the risks
After mapping, analyze each recorded routine, checking the way actions are being performed and identifying possible risks.
The idea is to thoroughly analyze each task in search of what disobeys accounting standards. At this stage, it is essential to rely on subject matter experts so that no detail is overlooked.
Classify internal controls
After identifying the risks, check if the company can mitigate or eliminate them, that is, if it has the tools to do so.
In the case of financial analysis, this concerns controls such as financial reporting, write-offs, electronic authentications, fraud protection systems, electronic document management , among others.
Test your internal controls
This is the time to assess whether the company's internal controls are really effective. To this end, the audit uses techniques and procedures capable of checking whether the identified risks can be minimized in a way that brings security to the company. Thus, it is possible to guarantee that the processes are being properly carried out and classify the security level of each one of them.
It is up to the auditor to verify the efficiency of internal control and, if problems are found, to assess their impact on the sector in which it is presented and on the company as a whole.
Analyze the results
The process described in the previous steps must be redone in each routine of the company so that the audit can gather the information necessary to present results based on the evidence.
Thus, in the case of positive assessments, the auditor must make a report informing about the effectiveness of the processes and recommending their maintenance.
When faced with the realization that some routine is incompatible with the requirements, he must use this report to identify the problem, informing how and why it happens. Finally, the auditor suggests the most appropriate actions to deal with the obstacles and how they can be put into practice by the company.
How important is an audit?
As seen, the audit is essential to improve the way the company deals with its activities. In addition, it is also important in combating problems such as fraud and even theft within the company.
Small errors, which may seem insignificant within the departments, when added together, are capable of representing a significant obstacle to the interests of the organization, generating losses that prevent it from growing .
With the audit, it becomes possible to identify problems and assess the risks they bring, whether motivated by errors or fraud.
It is a procedure that guarantees management a better understanding of the company's reality and the effectiveness of the different processes that are part of its routine.
In addition, by offering solutions aimed at improving the organization's internal control, the audit allows the creation of a solid basis for carrying out the planning and execution of practices capable of directing the company to more expressive results.
In this sense, the audit goes beyond the action that aims to alleviate problems. We can say that it acts as a strategic ally for the company, as it allows greater operational efficiency in the processes and, in this way, offers security for the enterprise to grow with activities under control and without risks from a legal point of view.
When to do an audit?
It is essential to highlight that, contrary to what many people think, the audit works much more to help the company than to bring losses. Its main objective is not to “hunt down” problems and identify those responsible for them — although it can find eventualities — but rather to act as a tool to help management know how to better deal with processes and data.
The idea, in general, is to guide the organization in the correct way so that it can achieve efficiency in its procedures, without this being incompatible with the proper compliance with specific standards.
Therefore, the ideal is for the company to resort to an audit whenever there is a need to direct its practices towards a safer and more rational path.
Finally, there are many benefits that an audit can bring to an enterprise. It is through it that companies are able to find ways to improve their corporate governance practices and ensure due transparency to attract investments and win customers in the market. Likewise, with it it becomes possible to make decisions based on more reliable data and processes , which guarantees more rational choices for management.
You may have already asked yourself: how do you know if it is feasible to improve business processes safely? With an auditing service, you can identify opportunities to transform not only the procedures and systems, but also the company's internal controls, ensuring that activities are carried out in the most qualified way possible. Thus, management will be able to recognize possible risks to the company and act in a corrective manner.
So, keep in mind that, regardless of the company's objectives, whether they are to improve financial, operational and even environmental practices, the audit is a procedure that can always be considered in the search for solutions. Start seeing your business in this light and act looking for the benefits.
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