By Morgan International Staff Writers
When a business is entering the audit cycle, there are some primary considerations that it should take with regards to the audit and potential areas of risk that might be within the business. These need particular attention – how the auditor will plan and execute their audit, the tools being used and other more complex areas of the process. The business should also consider the auditor and indeed their suitability for the role.
- Auditor independence
The auditor needs to be a completely neutral person who isn't affiliated with the company or connected companies in any way to ensure that the audit is consistent and high quality.
- Multinational audits
If the auditor is from outside the country, it is important to check the professional reputation and independence of the auditor with companies and professional bodies in their home nation.
- New accounting standards
If the company has transitioned to any new accounting standards during the year, this is a high risk for the audit cycle as the overlap could leave areas of vulnerability. New standard approaches are being encouraged for revenue recognition, credit losses and preparing the financial statement.
- Economic factors
All businesses can be affected by certain economic factors – the rise of fuel prices is a classic example. Ensure these are factored into the audit cycle appropriately.
- Financial reporting areas
Potential areas of risk include the assessment and management of ongoing concerns by the auditor and that the procedures of evaluation and testing can cover earnings in foreign jurisdictions.
- Ever increasing transparency
New rules require the disclosure of more information in auditors including the role of an engagement partner and other participants so this needs to be factored into the audit process.
There are also other considerations that should be used to look for risks and problems within the method including:
- Engagement quality review
- Improper alteration of documents
- Cybersecurity risks
- Software audit tools
- Auditor’s reporting model (if a new version is pending approval)
An important part of the auditor’s role and that of the company using their services is to identify and handle the many risks within the audit cycle to help minimalize or remove them entirely. By considering areas such as the economic factors affecting the business and any new accounting standards employed by the business, areas of risk can be identified before the audit and made certain to give the correct attention during the undertaking. This makes for a more successful audit process.