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Conducting an official financial inspection, recovering money, and catching wrongdoings. Sounds like most crime thrillers, now doesn’t it? Now let us imagine this plot hinges on a case of accounting fraud and companies subject to rigorous investigations.
An auditor began performing the statutory audit, assessing its regulatory environment (with or without help from the internal auditor) subject to governance and professional ethics relating to audit and assurance.
Lo and behold, the auditor then discovered 20 million in crores in potential overpayments on construction contracts. Hmmm…something fishy is definitely going on here, triggering everyone’s Sherlock Holmes instinct. Most of us would be happy to watch how this mystery is going to be solved or even figure out how to solve it together with the auditor.
This fascination and exhilaration from watching crime thrillers makes us think about what real-life auditors do.
Along with providing good accounting knowledge, ACCA’s Audit and Assurance (AA) paper can help you accumulate the portfolio of skills and attributes that determine professional and successful transformation if you ever want to be an auditor.
Without further ado, here are 3 best practices to audit like a professional and we will go into how to recognise the key differences between accounting and auditing.
Not long ago, a basic audit was performed by the business owner who regularly ensures financial information is accurate and procedures are efficient. In today’s business world, that has changed. The pace of change has intensified as the business world has grown more global and more interdependent hence best practices are put in place to ensure the accuracy and compliance of a company’s accounts.
I) Regulatory changes, auditing standards (Eg. The International Standards on Auditing, or ISAs), all the legal and tax rules require most companies to operate in a more agile manner so they can quickly provide assurance on internal controls, risk management and corporate governance to be able to come to an informed conclusion.
This is why companies must use auditors. Being an auditor can be fairly difficult but quite rewarding. To perform financial audits professionally, integrity and transparency must be the top requirements.
Companies and stakeholders expect total integrity and transparency from an auditor. If you intend to go into this career, plan on being honest no matter what. If you cannot give it, this is not the career for you. Auditors are supposed to catch dishonesty, not create it.
II) It is required that a professional auditor be completely independent from the company he is auditing. For example, he or she must not be holding any interest in the company or work for the company in any other capacity.
This is crucial in providing third-party assurance to various stakeholders that the subject matter is free from any material misstatement. Hence, when auditors audit a company, making mandatory attempts to ensure regular rotations of auditors during the audit process to get fresh opinions on the material is critically important.
Accounting and auditing are both related to finance, but they are not the same function and understanding the distinction between them is important. Generally speaking, accounting is defined as managing a company’s monetary records and reporting its financial affairs. Auditing, on the other hand, detects frauds and helps create as well as improve internal control systems.
The process of these two may happen in a specific sequence. The financial statements of public companies are primarily developed by accountants, then may be verified by internal auditors (if the function exists), and finally audited by external auditors. For small businesses, the process will often stop at the accountant level, with only certain statutory declarations being filed instead of a statutory audit, depending on the size and nature of the company.
In summary, all auditors need to be accountants at the base level, but not all accountants can be auditors. Audit and assurance goes deeper into monitoring and evaluating the finances and resources of a company, whether they are being used properly and effectively in conjunction with the company’s objectives and the country’s laws and regulations as well as being the last line of defense in accountability to the company, stakeholders and investors etc.