Verification of financial statements of a legal entity is known as financial audit or audit of financial statements. The audit makes sure that all the financial statements of the concern are presented fairly. Financial audit gives a fair and true view in accordance with financial reporting frame work. A financial audit enhances the degree of confidence of intended users in financial statement. Accountants who are experts in financial reporting perform financial audits. Financial audit is one of the major assurance functions provided by accounting firms. Objective assurance and consulting activity which adds value and improve the operations of an organization is known as internal audit. Professionals who are employed to perform the internal auditing activity are known as internal auditors. Professionals who perform audit based on financial statement of a company or government entity are known as external auditors.
Purpose of financial Audits
Financial audit represents the performance and position of an organization to the firms’ stakeholders. Financial audits add credibility to the implied assertion by the management of an organization. The shareholders are the principal stakeholders of the company. Audit is very important as tax authorities, banks, regulators, suppliers, customers and employees are also interested in ensuring that the financial statements are accurate. Financial audit makes sure that material misstatements are detected by audit procedures. Any missing information caused by fraud or error in the financial statement is known as misstatement. Audits add easing the cost of information asymmetry.
A formal opinion issued by an auditor after performing an evaluation on legal entity is known as auditor’s report. The audit report is considered as an assurance service for users and it helps user’s to make decisions based on the results of the audit. In case of reporting financial informations to users, auditor’s report acts as an important tool. Many auditees rely on auditor reports to certify information which attracts investors and improves public appearance. When an auditor confirms that the financial statements given are true and fair in accordance with financial reporting frame work, the opinion is called unqualified opinion. The financial statements are prepared using Generally Accepted Accounting Principles. The financial statements are complied with significant legal requirements and regulations. Any change in the accounting principles have to be disclosed in the financial statement. Auditor’s reports do not change from country to country. Some countries require additional wordings or sometimes less wordings. External auditor performs various financial audits like certification audit reports, compilations, due diligence, environmental audit report, internal audit reports, regulatory inspection reports etc...