Financial auditing is a practice that is gaining
more and more space and importance within companies. In view of today's fierce
competitiveness, using effective tools for evaluating and controlling all the
activities of a business , especially in the financial sector, is one of the
basic requirements to guarantee its permanence in the market.
Reducing -
and, preferably, reaching the point of eliminating - errors and fraud,
controlling your finances efficiently and constantly evaluating your practices
are ways of working for a company to continue to exist and gain its market
share for a long time.
This is where financial auditing helps. By
systematically analyzing how organizations do their internal control, auditors
become an important source of reference for managers , showing problems and
critical points of a company's routines.
In this article, we will clarify how a financial
audit works and explain the steps necessary for its performance, highlighting
its importance to increase
efficiency through control and
continuous process improvement. Are you interested? So, read on!
1. What is
financial auditing?
Financial auditing is a branch of accounting that
specializes in systematically and impartially checking the consistency of facts
and information recorded by the financial area. To audit a company's finances
is to study its financial statements and make sure they are in accordance with
current accounting principles.
It will verify the existence of problems and risks
in any financial activity of the company, identifying the reason for their
occurrence, the moment in which they were consummated and outlining ways to
eliminate them. All of this aims to assess whether all procedures respect the
legal and ethical requirements that the company must comply with.
The financial audit therefore works as a kind of
quality control - since it implements mechanisms that provide security about
the financial, legal and organizational status of the company.
2. How did
it come about?
The first historical records of audit-related
activities date back to ancient times. That's right! By the year 4,500 BC there
were already people concerned with checking the consistency between the records
and the facts.
Throughout antiquity, it is possible to observe
examples of financial Auditors in Dubai. The Romans, for example, had an improved
audit system to serve as an instrument for controlling the empire and public
accounts.
Many family
businesses had to become professional
and seek resources to keep their products and services competitive in an
increasingly competitive market.
3. What
factors drove your growth?
This movement was important to make the control of
finances more transparent and professional. However, modern accounting and auditing
have come a long way since the beginning of the last century.
In addition to the development of the economy and
the change in the profile of market players, many other phenomena have also
given impetus to its practice.
A good example of this was the creation of the
Security and Exchange Commission in 1934 in the United States. The entity's
mission is to increase the reliability of financial information and records
provided by companies that trade securities on the stock exchange to safeguard
investor interest and increase the transparency of operations.
Another factor that contributed to the development
of financial auditing was the implementation of Keynesian economic policies in
the period that followed the 1929 crisis. The creation of a strong and
interventionist state meant that companies had to undergo a series of new tax
obligations. .
The audit, therefore, became important also to
ensure that the company operates within the limits imposed by the laws and
regulations issued by the Government.
In addition to bearing a greater tax burden, in
order to sustain the so-called “welfare state”, companies have also undergone
more intense regulation - which imposed a series of ancillary obligations, such
as the issuance of invoices and the maintenance of financial and
accounting books.
In United Arab Emirates, financial auditing came to
be seen as an essential tool for good
management , especially after the second world war - a time when the United
Arab Emirates economy was gradually opening up to multinationals.
With them came the big accounting offices, which
already worked with these companies abroad and were already used to the levels
of transparency practiced in the international market.
To have an idea of the importance of the topic
today, suffice it to say that, according
to research , about 70% of all United Arab Emirates companies have already been
victims of fraud. It is estimated that around R $ 2.2 billion are stolen by
employees in commerce every year. Unfortunately, small businesses suffer the
most from these numbers, which do not have a robust accounting structure.
Both the fight against fraud, tax compliance and
internal and external transparency are very important elements for the company
to maintain its financial health, an essential item for its growth.
In addition to making the investor feel more
secure, facilitating fundraising for the business, audits are also important to
reduce the likelihood that the company will be fined by the inspection
authorities, having to bear heavy fines or even with the establishment ban.
4. What is a
financial audit for?
The financial audit has the role of identifying the
complications, facts and accounting risks that affect the company's equity so
that, in this way, it can present an opinion on the efficiency and quality of
the company's internal controls.
Only by constantly monitoring all monetary values
related to the activities carried out in the company will it be possible to
develop and apply strategies to optimize
resources and, consequently, operational
fluidity.
The audit will therefore be responsible for
monitoring all activities that involve treasury and cash flow (accounts payable
and accounts receivable). The auditor assesses whether the financial sector
carried out all transactions correctly, lawfully and in accordance with the
company's internal rules.
This observance, on the part of the auditor, about
the financial statements and their compliance with the regulated accounting
principles and requirements is fundamental so that the use and targeting of
resources is carried out in a uniform and advantageous way for the company.
5. How to
perform a financial audit?
To perform a financial audit, it is necessary to
follow a script that goes from the identification of the company's processes
and routines to the evaluation of the results and the suggestion of
improvements by the accountant.
The step-by-step below identifies the steps of an
audit and gives tips on its
applicability. Check out!
5.1. Mapping
processes
Financial audit work should begin with mapping
existing processes in the financial sector. This means listing and identifying
all financial practices carried out by the company and which are the
responsibility of the financial department. This includes, for example:
- cash
flow management;
- payment
to suppliers;
- administration
of accounts payable and receivable;
- the
collection of delinquent customers;
- Reconciliations
and bank transfers.
The goal is to condense and lay out all of these
procedures on a task map. This measure makes the flow of all financial
processes clearly visible.
5.2.
Identifying risks
With the mapping ready, the second step is to
analyze each of the routines registered there. The objective is to study how
the action is being carried out and to identify the existing risks.
Therefore, a thorough analysis of each task must be
carried out, looking for errors and inconsistencies that are not in accordance
with the recommended by accounting standards.
When making this identification, it is important to
check the cash flow activities and ask the area manager about the level of
perception he has regarding the risk of the sector's activities.
5.3.
Identifying internal controls
After identifying the risks that exist and their
possible impact on financial processes, the next step is to assess whether the
company has an internal control system that can minimize them.
In other words, here it is verified what tools are used to
ensure that your daily financial activities do not present problems and flow
according to the plan. There are several types of Internal Audit and control system reviews
in UAE, each with its peculiarities and specific functions, such as:
- financial
reports;
- contracts;
- spreadsheets;
- approvals;
- electronic
authentications;
- casualties;
- reconciliations;
- revisions;
- Stamps.
As an example, let's look at a supplier payment
routine. After checking how a company pays its suppliers, we identified that
one of the risks that exist in this process is that of making a double payment.
The audit will ask the following questions:
“What internal control does the company do to
minimize this risk?”;
"Is it already in place?"
In this specific case, a good internal control
practice would be a payment reconciliation system followed by a cash register
that demonstrates, in a clear consultation form, that the payment has already
been made.
It should be noted that all internal controls in
the financial sector are focused on accounting. Also considered as internal
controls are the tools that assist in the day-to-day operations of the sector,
such as:
- fraud
protection systems;
- default
prevention;
- Routines
and guarantees against theft.
- Any
other measure that helps to ensure financial security.
5.4. Testing internal controls
Knowing what the company's internal controls are
and how they work, the audit will now have the mission of testing them in
practice. The purpose of this step is to check the efficiency level of these
controls, finding out if they can minimize the identified risks satisfactorily.
Based on specific techniques and procedures, the
audit will put each of the controls to the test, analyzing whether the process
is, in fact, being followed as expected and what is its level of security.
If the auditor finds that internal control is not
efficient or is not put into practice, he must list all the problems
encountered and verify their impact - not only in the financial sector, but in
the company as a whole.
5.5.
Analyzing the results
Repeating this process in all the company's
financial routines, the audit gathers the evidence and the results obtained. In
positive evaluations, the auditor informs in his report that the process is
effective and recommends its maintenance.
Read also: Internal
audit: reasons for your company to put into practice
However, when verifying that a certain routine is
wrong, it is the task of the audit to point out exactly where the problem is,
informing how and why it is happening. At the end, the auditor concludes his
work suggesting the best practices to solve it and how they should be
implemented.
What every manager should keep in mind is that the
intention of a financial audit is not just to point out mistakes and culprits.
Unfortunately, this is still a common thought, considering that an audit is
usually only performed after failures in
financial routines have already
caused some damage.
The audit should be valued and seen much more as a
preventive action, applicable periodically and continuously within a company.
Its results benefit everyone because:
- guarantee
the sustainability of the business;
- improve
profit margins;
- decrease
the risk of errors;
- Make
employees feel more secure.
6. Why is it
so important to perform a financial audit?
In addition to the fact that conducting a financial
audit is a vital task in improving the way a company manages its money, it also
fulfills the role of preventing and combating fraud, scams and theft within an
organization.
Often, small losses may seem insignificant for
business, but the final sum represents
large losses - financial and
credibility - when such behavior is not reprimanded and shunned.
The financial audit will then be essential for it
to be possible to identify and verify the risks of distortion that have
occurred in the company.
Read also: Discover
6 types of audits that can help your company
In addition, the audit will allow a greater
understanding of the financial
reality and organizational effectiveness
- which ensures improvements in the entity's internal control and,
consequently, a solid basis for planning and executing practices that will
correct the errors and deficiencies identified by the auditor financial.
All this care guarantees much more than the
reduction of errors and the elimination of risks. Auditing is also a great
strategic ally for any business that wants to have a more effective financial
sector and, with that, grow safely and without inconvenience involving tax
complications.
7.
Controllership and auditing: what is the relationship?
Many people who do not know accounting closely
confuse or treat the concepts of controllership
and auditing as synonyms . The
confusion is justified: after all, the two activities are very similar.
However, the two expressions represent totally
different things! We can say that controllership (despite being a branch of
accounting) is a little closer to the organization's management, since its
performance is focused on the company's financial future.
This is, therefore, one of the biggest differences
between the two. The audit, considered in isolation, generally limits its scope
of analysis to the past - that is, to sales that have already been made, to
taxes that have already been collected, to payments that have already been
made, etc.
Controllership, in turn, looks forward to
anticipating the challenges that the company may encounter in its path. It is
worth saying, therefore, that the two activities do not cancel each other.
Quite the contrary: they are complementary!
8. Financial
audit and accounting audit: what is the difference?
In its origins, the audit was born within the
financial department. However, it proved to be such an effective means of
examining the company's activities and ensuring the implementation of the
planning that it even gained popularity in other sectors of the organization.
This is what happens, for example, with accounting auditing .
As its name already indicates, an accounting audit
aims to analyze accounting and non-financial documents. Thus, its objective is
to validate the accounting balances -
which is done by comparing the entity's financial statements with its equity,
economic and financial situation.
One of the biggest advantages associated with
accounting auditing is the evaluation of the company's internal controls,
ensuring that the accounting records do, in fact, reflect reality and not a
fiction fueled by time with errors and fraud, for example.
Read also: Internal
audit: reasons for your company to put into practice
Without reliable information at hand, it is much
more difficult to run a business. Not to mention that the trend is that the
pressure on managers will increase, since the
partners or shareholders will
also not feel safe with the unaudited financial statements.
9. Internal
audit and external audit: when to use one or the other?
In general, the internal audit aims to draw
conclusions and generate reports directed to the company's own management. The
external audit, in turn, aims to attest the veracity of the records to third
parties.
These third parties may include investors, minority
partners, the government or financial institutions - for purposes of credit
approval, for example. In that case it is important to choose an impartial
accounting firm to stay ahead of the process.
Finally, we could not close the article without
emphasizing the importance of controls and audits in the company's finances, since
errors and fraud can be expensive - besides, of course, exposing the
organization to fines and sanctions provided for by law.
Furthermore, as we have seen, conducting a
financial audit on the company is not difficult when we follow some fundamental
steps! It is also worth remembering that the manager should not feel alone on
this journey. Partnering with accounting firms and management consultancies can
be the best way!
