Financial Audits: What They’re for and How They’re Done

For Quebec businesses, audits by accounting specialists are sometimes an inevitability. Audits can be daunting for new business owners, but they can prove much more useful that you think.

Find out more about financial audits, how they are performed and why you should have them done.

What is a financial audit?

The purpose of a financial audit is to check a company’s financial statements to make sure everything is in order and detect potential errors. Companies can use an audit report to demonstrate the credibility of their financial statements.

Audits are performed by external, independent CPA auditors in accordance with standards set forth in the Chartered Professional Accountants code of ethics. Based on the results of their report, CPA auditors can give companies advice on how to correct any anomalies in their financial statements.

Auditors may also give feedback on the general state of the financial statements based on accounting standards. To make sure that your financial statements meet these standards, you may want to hire the services of corporate accounting experts.

Why have a financial audit done?

There are a variety of reasons to have a financial audit done. Firstly, an audit is a good step to take when preparing to sell your business. Having an audit report that substantiates your financial statements can reassure potential buyers that the company’s finances are above board.

CFOs may want to request a financial audit to prove to current and future business partners that their good reputation is well deserved. This directly affects the company’s growth. If there is an error or anomaly, they can act quickly to avoid more serious consequences.

Finally, financial institutions and creditors may demand an audit if they believe that the company’s financial statements may be inaccurate.

How a financial audit is performed

CPA auditors follow a very precise methodology when performing a financial audit. The procedure is divided into four phases: initial review and planning, assessing the internal control, directly evaluating the accounts and producing the final report.

Let’s look at these four steps in greater detail.

Initial review and planning

The first phase is designed to familiarize the auditor with the company and its financial context so that they will be well-prepared to carry out the audit. The auditor uses the information gathered during this phase to plan the audit.

Assessing the internal control

During the internal control assessment, the auditor examines the internal control system to identify potential anomalies and risk factors.

Directly evaluating the accounts

After reviewing the potential anomalies and risk factors, the auditor evaluates the accounts directly to determine whether there are any actual anomalies. To do so, they use factors called audit assertions to determine whether the information in the financial statements and balance sheets is accurate.

Producing the final report

Once the accounts have been directly evaluated, the CPA auditor must produce a final report in which they provide feedback that summarizes the results of the audit. The report is submitted to company management and partners.

Trust T2inc.ca for advice on corporate accounting

Financial audits are an inevitability for businesses. Even though they take time, it’s important to think of them as useful tools that help ensure your company’s financial health.

Need more advice on corporate accounting? Don’t hesitate to contact the tax accountants at T2inc!