A market economy is an incredibly complex system. Finding your place in it is not so simple, especially when it comes to business. Both legal entities and individual entrepreneurs should carefully take care of their financial condition. An important role in such care is played by the audit. Not everyone is familiar with the planning and implementation of an audit. What is this procedure, how is it implemented? Let's try to understand our material.
What is an audit?
In Latin, there is the word audio, which means "listener", "listening". A person who can listen is capable of helping. For example, this is a doctor who learns about the patientās health status. Having understood the causes of the disease, he is ready to start treatment. In the economic sphere, the auditor is the same doctor. Only its main goal is not treatment, but the search for problems, one might say, diseases.
A financial audit is a mandatory procedure for all legal entities. Once a year, organizations should pay attention to planning and conducting an audit. You can do this more often, but it all depends on the will of the legal entity itself.
The auditor checks the financial and economic condition of the organization. He has much more knowledge and skills than, for example, an accountant. This is due to the continuous development of the audit procedure over the past 30 years. Since the time of perestroika, the active development of the market began in the country. But a strong economy cannot be formed without quality control and supervision measures. Control is carried out mainly by the state. Moreover, his goal is not to impose his services, but to create a system in which legal entities would become more independent in matters of financial audit and audit planning.
Goals and objectives of audits
The purpose of the audit is to establish the accuracy and reliability of the financial statements of various economic entities. This is also recorded in the Federal Law āOn Auditing in the Russian Federationā. In the course of the audit, sufficient and accurate evidence must be obtained that allows auditors to confidently talk about the compliance of the existing reporting with the norms of Russian legislation.
During the financial audit, the following objectives should be achieved:
- full identification of financial reserves and verification of their compliance with the data specified in the documentation;
- checking the completeness, accuracy and reliability of reporting all costs, reserves, finances and borrowed funds;
- confirmation of the reliability of reports or a conclusion on their unreliability;
- control over compliance with Russian legislation.
The goals may seem a little difficult to understand, and therefore lawyers were able to reformulate them. So, planning and conducting audits is necessary to verify the economic condition of the organization:
- on the validity of inclusion in reports of certain amounts;
- the general acceptability of reporting;
- on completeness and accuracy of calculations;
- on the fidelity of the assessment given by the organization to its actions;
- to split the balance;
- the openness and accuracy of information recorded in the financial statements.
Thus, the task of audit companies is to conduct a thorough audit of an organization. If problems are identified, then the auditors must indicate them and ask the company to immediately rectify the situation.
Integrity, Impartiality and Confidentiality
The principles of audit planning and its implementation are approximately the same. All of them are indicated in the first chapter of the corresponding Federal Law.
The first principle is the integrity of the audit. It is the completeness and accuracy of the implemented actions that is the basis of professionalism. Both auditors and their subordinates are required to competently and efficiently organize their activities. It is forbidden to hide important information from each other, interfere with work, demonstrate your incompetence, etc. You always need to maintain professionalism and a desire to do your job as best as possible.
The following principle of audit planning and implementation is called impartiality. This is a very important principle, as it is associated with the concept of objectivity of verification. In short, all work must be carried out honestly and truthfully. No obstacles should interfere with the accurate determination of the results. Some guarantees enshrined in federal law support the principle of impartiality. In particular, this is a ban on conducting multiple audits by the same auditor, inadmissibility of the implementation of a financial audit by a person who is a relative of the audited entity, etc.
The third principle is confidentiality. All information received from the auditor to the audited entities should be protected. This is especially true for audit planning procedures. The security and secrecy of the information provided will allow for a more accurate and impartial verification.
Professionalism, independence and reliability
The principle of professionalism is based on a number of important guarantees. In particular, these are special requirements for the education, skills and abilities of auditors. Itās very difficult to get a job at a financial audit company. This is much more complicated than getting a manager or an accountant. One has only to think about how many responsibilities are assigned to the auditors. Understanding the economic activities of companies that are not alike, and moreover, in a limited time, seems to be an incredibly difficult, and sometimes even impossible task. For everything to go smoothly and without a single mistake, you need to remember the principle of professionalism. This is knowledge of oneās business, interest in it, observance of professional etiquette and the ability to evaluate their actions soundly.
The next principle is independence. This is an idea closely related to the concept of impartiality. Some lawyers attribute independence to guarantees, rather than fundamental principles and ideas. The thing is that, like judges, auditors independently organize their activities. They obey only the law. No one can put pressure on the auditors or somehow interfere with their activities. Any attempt to bribe persons exercising financial supervision will be punished in accordance with criminal law.
The last important principle of conducting, organizing and planning an audit is the focus on the process of obtaining evidence. This is a reasonable and legal way to draw up reliable conclusions before the audit, or based on its results. All evidence must be verified. Since the audit is conducted in a limited period of time, it is simply impossible to verify the entire economy of an enterprise. Therefore, audit companies simplify their activities a little. They interview the audited entities, and then check some of the evidence of authenticity.
Thus, the purpose of audit planning and implementation is supported by six important principles. Next, two main forms of financial audit should be considered.
Internal audit
Financial and economic supervision has two main forms: external and internal. Both of these forms differ in scale and purpose. So, internal audit planning is determined by the goal enshrined in the Federal Law. This helps management bodies in the implementation of effective supervision of various links and controls. The main task of auditors conducting internal audits is to satisfy the needs of management bodies with regard to the provision of control information. The adequacy of control systems and the effectiveness of their activities are assessed.
Internal audit takes several forms. It can be functional, that is, aimed at assessing the productivity and efficiency of the economy. There is also an organizational and technical form of audit. It is expressed in the supervision of various management links, as well as monitoring for their technological or organizational feasibility.
Most often, internal audit is applied in the banking system. Since credit organizations have a very complex and extensive structure, they are easier to check in parts. The practical benefits of internal financial audits are often much greater than external ones. A major drawback is the need for a repeat audit. So, the procedure should be carried out not once a year, but much more often. Another issue is planning the audit process. Not all organizations have time to constantly draw up audit plans.
External audit
The external form of economic and financial audit is more complex and extensive. The main purpose of such verification is to provide real, objective and accurate information about the audited entity.
An external audit is conducted on a contractual basis. The task of persons checking the financial condition of the enterprise is to evaluate the entire organization, and not some of its parts. An external audit is required. Organizations are required to implement it once a year. The functions performed by auditors are sometimes not interconnected, and therefore the result of the audit may not always be accurate. Everything will depend on the professionalism of both parties and on the desire of the auditor to conduct quality supervision.
The depth of the external check is different. It is determined by the contract, which is drawn up at the audit planning stage. Essential, that is, the mandatory terms of the contract, is the verification of accounting documents, the calculation of the organizationās budget, the assessment of revenue, etc. There are also optional, that is, additional criteria. The audited entity agrees in advance with them about the checking authority. Examples of optional conditions are activities such as forecasting, in-depth assessment, advice, reorganization, and more.
Preliminary Audit
Finally, it is worth talking about the stages of audit planning. Control over the enterprise cannot be built just like that; careful preparation for verification is always necessary.
The first step in planning the procedure is a preplanned, or contractual activity. This is the time from the will of the customer to the direct conclusion of the contract. The customer finds the right audit company, after which he determines the timing and forms of verification. This is a very crucial stage, as large organizations have little time and opportunity to pay attention to regulatory authorities. In order to avoid problems in the form of sudden failures, and as a result, audit delays, you need to think carefully about a convenient date for verification.
It should be borne in mind that external audits, and sometimes even internal ones, are not a reason for stopping the work of an enterprise. The management of a legal entity will only be temporarily burdened with additional functions.
At the preplanned stage of the audit organization, the customer must immediately prepare all the necessary documents. The full list of securities to be issued to auditors can be checked with the company itself, to which the customer contacts.
The customer should immediately think about audit planning and the audit program. The fact is that the program is not compiled only by the control authority. The customer himself must take part in its development. Otherwise, something very uncomfortable for the person being audited may occur. For example, during the audit it turns out that a number of optional measures will be implemented that are completely unnecessary for the customer. To avoid this, special attention should be paid to the preplanned stage of organization.
Audit planning
An audit must be carefully prepared. This is done in two stages: the first, preplanned, we have already disassembled. Next, audit planning itself is implemented. There are two stages: drawing up a contract and developing a program. Sometimes a contract is a program. Such a combination of documents is typical for the implementation of external verification. In other cases, the contract is an act in which the names, surnames, terms and methods of payment are indicated. The program is formed separately.
What is an audit contract? According to the law, this is an official document that indicates the relationship between the enterprise (customer) and the audit organization (contractor). Since both parties are entrepreneurs, the contract is drawn up in accordance with civil law. It may contain material and optional conditions. When planning an internal audit, it is possible to draw up several contracts at different stages of verification. Here is what the document says:
- name of the parties, contact information about them;
- rights and obligations of both parties;
- subject of the contract for the provision of audit services;
- terms of service;
- responsibility of the parties;
- cost of audit services.
In a place where it is said about the conditions for the provision of services, it is necessary to write about their terms and stages, purpose and object, as well as links to legislation. The clause on rights and obligations provides information on the form of verification, the level of independence of each of the parties, access to the information base and disposal of working documentation.
Payment for services
An important place in the audit planning stage is occupied by the item on payment for services sold. According to the law, there are four legal forms of payment for an audit.
The first form of payment is called chord. It is appointed in advance and recorded in the contract before the start of the audit. Many auditors determine the amount arbitrarily, depending on the financial capabilities of the customer and the complexity of further work.
Time-based form of payment is widespread in today's services market. The contractor in the person of the audit organization does not say the cost of work in advance. The price becomes known only upon completion of work. This is not the most convenient form of payment, because it is difficult for the customer to predict what price he can count on. Everything will depend on the time and complexity of the work.
The next type of payment is called piecework. The calculation of the price of one operation is determined by the accountants of the customer and directly by the contractor. Piece-rate payment of services is the most convenient of those presented, since its form and price can be calculated in advance. During the execution of the order, the auditee may request additional work.
Mixed payment, the last possible form, is a combination of all the payment methods listed above. It is convenient to use this form of payment in large and complex enterprises. Different points are taken into account. This, for example, the monetary solvency of the customer, the selected forms of services, or the total number of financial statements.
Audit planning, therefore, is an even more responsible process than the audit itself. If priority is given to the contractor in the implementation of the financial and economic audit, then only the customer should plan.
Verification Steps
Having examined the standards of audit planning, it is necessary to talk a little about the procedure of financial and economic verification. After planning, the auditors are divided into departments and begin work. Each person implementing the audit acts on a special questionnaire prepared in advance. The questionnaire is a kind of methodological manual, which contains certificates received from the customer. Information from the manual is verified with real data. If a contradiction is discovered, the auditors will have to be wary. All organizational and functional problems will be recorded in a special protocol.
The depth of verification depends on the form of audit. If the verification is external, then there will be few performers. Most likely, they will not even have to separate. They will quickly compare the real state of the enterprise with the data of the questionnaire, and then leave the organization. If the audit is internal, then everything will be much more serious. The performers will be divided into several groups, after which they will begin careful supervision of the production, organizational or functional sphere.
Audit closure is the same in all of the listed audit forms. A protocol is drawn up which indicates the organizationās weaknesses, various inconsistencies, problems, threats, etc. The customer gets acquainted with the list and undertakes to correct all difficulties in the near future. As a result, a document is issued on the audit results.