Auditing is one of the basic needs and requirements of every business organization. The organizations often conduct Types of audits opt an internal audit twice a year and face an external audit process annually. It is essential to ensure that the operations and progress of the organization are transparent and follows the regulations shared by the authorities.
Auditing the financial statements of any business organization is a critical part of the external audit process. Even companies located in free zones like that of the United Arab Emirates have to go through financial statement audit to show their transparency. This is the point at which they can commit fraud. Therefore, an audit of this aspect is crucial.
Explore this article in detail to learn about the key financial statement aspects you need to tend to for the external audit process.
Top 8 Financial Statement Points External Auditors Review
Financial statements show the daily track record of the transactions and dealings of any business organization. Even if the organization or its employees try to manipulate the records, they will accumulate huge slush funds at the end of the year. Therefore, you need to conduct an internal audit of your financial statement before the external auditors highlight the issues.
Here are the top financial statement points that external auditors review critically.
1). Inventory
Inventory is the basic financial statement audit point that the external auditors review critically. The inventory is managed on a daily basis, so there is a high chance of using fraudulent tactics and mismanage it. Most organizations acquire the help of internal auditors from the top audit firms in Dubai to ensure their inventory is free of errors and discrepancies to avoid issues during an external audit.
2). Expenses
The second financial statement audit point external auditors pay most attention to is the expenses of the organization. Some of them use the tactic of misreporting their expenses and show a lower amount to avoid tax. On the other hand, some organizations try to shift the expense of a certain period to some other time. You need to report your expenses without any manipulation to avoid fraud charges.
3). Accounts Payable
Manipulating the accounts payable is a common practice. It helps the organizations to show higher profitability as well as dodge principle payment. You, as a business owner, might not be doing this, but your workforce can conspire against you. So, tend to your accounts payable carefully before the external auditors point out the mistakes and hold you accountable for manipulative practices.
4). Accounts Receivable
The external auditors pay special attention to accounts receivable while conducting an audit of financial statement audits. Some companies deliberately show lower account receivables. This is a tactic to trick the investors and make them believe that the cash collection and cash flow rate of the organization is commendable. However, external auditors can easily bring the hidden truth to the surface and hold the authorities accountable.
5). Cash and Bank Balance
The organizations that work through fraud and manipulative practices often temper their cash statements and bank balance. They think that the auditors will not have enough time to check the detail of each and every transaction to point out the issues. However, this is an only false hope, as the external auditors can easily track the discrepancies in cash and ban balance. So, avoid these negative tactics if you are also trying them.
6). Debt
Another important financial statement point that gains the attention of the external auditors is the debt of the organization. The authorities can show a high debt to avoid certain implications. However, the auditors check fiscal year statements and other details in order to ensure if the organization is not manipulating the records. If you are found using negative tactics, you can face charges like fines, suspension and even imprisonment.
Read also: Inventory Audit Procedures
7). Non-Current Assets
Noncurrent assets are another important aspect of the financial statements the authorities can utilize to manipulate the investors. They depict the market value of their venture manipulatively to gain the trust of investors and make them invest in their venture. The external auditors bring the truth to light and save the investors from making a wrong decision.
8). Revenue
Revenue is the most critical point of any business organization that is often manipulated to win over the investors. The organizations try to show a higher revenue to get more and more investors on board. Your employees can conspire against you with your competitors to defame you. So, hire expert auditors from the top audit firms in Dubai and ensure transparent revenue reports, in addition to getting advice to manage your revenue records properly.
Read also : IRS audit
Manage your financial statements effectively to avoid repercussions!
At times, the business owners are involved in fraudulent activities. While most of the time, it is the employees with little authority or the business partners that try to hurt the reputation of the owner and cause a blow to the business. In order to avoid becoming the prey of such planning, you can contact internal auditors and ensure your firm is safe from fraudulent or manipulative practices.