After bookkeepers complete their accounts, and accountants prepare their financial statement, these are checked by internal auditors.
An internal audit is an examination of a company’s accounts by its own internal auditors or controllers.
They evaluate the accuracy or correctness of the accounts, and check for errors.
They make sure that the accounts comply with or follow, established policies, procedures, standards, laws and regulations.
The internal auditors also check the company’s systems of control, related to according transactions, valuing assets and so on.
They check to see that these are adequare or sufficient and if necessary, recommend changes to existing policies and procedures.
Public companies have to submit their financial statements to external auditors-independent auditors who don’t work for the company.
The auditors have to give an opinion about whetever the financial statement a true and fair view of the company’s financial situation and results.
During the audit, the external auditors examme the company’s system of internal control, to see whetever transactions have been recorded correctly.
They check whetever the assets mentioned on the balance sheet actually exist and whetever their valuation is correct.
For example, the usually check that some of the debtors recorded on the balance sheet are genuine.
They also check the annual stock take – the count of all the goods held ready for sale.
They always look for any unusual items in the company’s account books or statements.
Until recently, the big auditing firms also offered consulting services to the companies whose accounts they audited, giving them advice about business planning, strategy and restucturing.
But after a number og big financial scandals, most accounting firms separated their auditing and consulting divisions, because an auditors who is also getting paid to advice a client is no longer totally independent.
Are control system adequate, according to external to external auditors?
Have accounting principles been applied correctly?
auditors produce an audit report.
Does the company follow the advice given in the management letter?
Auditors produce a qualified report, stating that the financial statements don’t give an entirely true and fair view and there are some problems.
auditors find irregularities : systems are not adequate, principles have not been applied correctly or consistently.
Auditors write a management letter to directors or senior managers explaining what needs to be changed.
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