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!