Financial audit refers to the annual audit of a company’s financial statements to ensure its records are a fair and accurate representation of its financial transactions.
For public interest entities (beyond publicly traded companies), financial audits are a legal requirement by CAMA 2020. This is also applicable to companies that are not considered small-sized entities by virtue of Section 394 of CAMA 2020.
The process of creating a financial audit involves several key steps
Planning
Planning for a financial audit involves performing scoping and risk assessments to understand the business operations and environment of an organization, identify areas that are material to the entity, and evaluate areas of significant risk. It helps auditors determine the extent of work required and the level of reliance to place on the existing controls.
Controls Assessement
Auditors examine an entity’s internal controls to understand the risk environment. These controls are the policies and procedures that ensure accurate financial reporting.
Testing
This involves performing substantive procedures to verify the accuracy of financial statements. It entails scrutinizing transactions, account balances, and disclosures. The focus is on compliance with accounting standards—IFRS/GAAP. Substantive procedures are performed to create conclusive evidence regarding the completeness, existence, disclosure, rights, or valuation (the five audit assertions) of the financial statements.
Reporting
This involves forming the audit opinion after completing the audit process by issuing a report. The report includes an opinion on the fairness and accuracy of the financial statements. It provides stakeholders with some level of confidence about the financial condition and performance of an organization.
