“An audit is a turbulent zone in exchange for the financial health of your company”.
Audit is a tool whereby a business entity can make sure of the transparency, completeness and reliability of the company’s financial statements. From my personal practice, real sector companies turn to an audit company for 3 main reasons:
- an audit of financial statements for the fulfillment of legislative requirements in accordance with the Law of Ukraine, updated in 2018, amended Law of Ukraine dated 16.07.99 №996-XIV “ About financial accounting and the financial reporting in Ukraine”;
- Audit for procurement of funds.
- - an audit of consolidated financial statements in order to comply with the requirements of the commercial banks in connection with an increase of the credit limit to UAH 200 million or institutional banks such as EBRD/IFC in connection with the issue of funds for the fulfillment of a capex program related to the construction of a new production plant;
- Audit for a shareholder.
- - voluntary audit, the customer of which is the owner of the enterprise to determine the reliability and level of financial reporting, accounting policy and accounting in general;
- At the same time, the employee performance review for professional suitability is carried out;
- Audit to detect fraud.
- - audit of financial reporting for the purpose of identifying the risks of fraudulent activities at the enterprise, and, as a result, their minimization.
- а) It is carried out in connection with the new management assuming their duties, in order to understand the current situation;
- b) Is carried out hot on the trail after the identification of fraud as part of an internal investigation.
- Conflicts of interest are “NOT allowed” in the work of the auditor:
- а) For instance, when the audited chief accountant of the enterprise is a relative of one of the auditors, who audits this enterprise;
- b) desktop audit without the actual visit of the auditor to the enterprise for: participation in the annual inventory, reconcilement of transactions from the accounting database with the originals of primary documentation;
- c) low cost of the contract for the execution of auditing services, because if the contract price is low in comparison with the volume of the assignment and the deadlines are tight, this means that the auditor has not fully completed all the auditing procedures and hasn’t received the volume of necessary evidence about the completeness of the accounting, ongoing concern, and therefore violated one of the rules of the auditor- scrupulousness and impartiality;
- One of the “scourges” of the Ukrainian audit market from the Customer’s standpoint is the unwillingness to change the auditor and the comfort zone of the accounting staff, even if the new provider is a company, that is higher in the world ranking, better in professional qualities, however at a lower price than the current provider.
- Brief conclusion in this part: the comfort of the company’s accountants is more important than a lower price and new impartial third-party view in the form of a new auditor. This practice is not just an ad hoc case, but a trend in Ukrainian business. I often hear from business: we feel so comfortable working with the current provider of auditing services, he knows everything about us, we have been working according to the same scheme for several years, why should we change the auditor? The answer is- so that the majority of auditing procedures are not carried out purely formally, and the audit report contained reliable information, and not another vanilla story, like “we are doing well”.
- Brief conclusion: an annual audit is a financial check-up of your business, and a check-up should be as transparent as possible in order to avoid one of the 3 risks of a Fraud tree- financial statements distortion, which, by the way, according to the World statistics, causes the greatest damage to business in terms of lost amounts of money.
- The main takeaway for business owners: do not let your accountant or financial director stay in his comfort zone in exchange for the lost millions of your company.