Everyone wants to know they are dealing with credible information, whether it be shareholders, creditors, lenders, employees, analysts, prospective investors, so that they can make assessments and decisions with confidence. An audit can also deliver value to an organisation by providing business advice on the internal controls, processes of the business, and recommendations for improvement.
When conducting an audit, the auditor assesses whether:
- Transactions and amounts are correctly reported in the financial statements.
- Assets and liabilities existed at the reporting date.
- Assets were owned by the entity at the reporting date.
- Assets, liabilities, revenues and expenses are appropriately valued in accordance with accounting standards.
- Amounts are properly classified, described and disclosed in accordance with accounting standards.
- Processes are being followed and efficiencies utilised by staff
This provides audit assurances through
- Confirmation with outside parties;
- Testing selected transactions by examining supporting documents;
- Completing physical inspections and observations; and,
- Considering and evaluating the internal control system of the organisation.
As evidenced, audits can result in a lot more than just issuing an audit report; for example, it can result in process efficiencies for your business that help improve turning costs into profit!
A review is smaller in scope than an audit, and consequently does not enable the auditor to provide an audit opinion. A review of a financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
Instead, an auditor would provide an opinion that, based on their review, nothing has caused them to believe the financial report was not prepared, in all material aspects, in accordance with the relevant reporting framework.
The requirements differ depending on the type of legal entity.
When running a charity, your audit requirements depend entirely on the total amount of revenue that your charity generates.
- Small charities (those with less than $250,000 revenue) are not subject to audits or reviews.
- Medium charities (those with revenue equal to or greater than $250,000 but less than $1 million) are subject to audit or review.
- Large charities (more than $1 million of revenue) must be audited. companies
Proprietary companies are audited on the basis of size as well as foreign ownership.
- Small proprietary companies that are not foreign-owned are not subject to audit or review unless requested by a member of the Australian Securities and Investment Commission or a shareholder.
- If a proprietary company is foreign-owned, the company is subject to audit.
- Large proprietary companies (that meet any two of the following: more than 50 employees; $25 million gross revenue; or $12.5 million in consolidated assets) are subject to audit.
The financial statements of a listed company are subject to a half-year review and audit of the financial statements for the financial year.
Incorporated associations, in much the same way as charities, are audited depending on their annual turnover.
- Associations with less than $250,000 revenue are not subject to audit or review.
- Associations with revenue between $250,000 and $1 million are subject to review.
- Associations with more than $1 million must be audited.
Audits can be annoying, however, are an integral part of compliance and business strategy.