Types of Audit Services
So you or your company is being audited. You might be tempted to run and hide, or even avoid it — but don’t. If your financial records are in order, an audit can be highly beneficial.
Although audits inspire fear, they don’t have to. In the simplest terms, audits are an objective examination and evaluation of a company’s financial statements. These evaluations ensure that the financial records are a fair and accurate representation of the company’s transactions. Typically, financial statements that include audit evaluations are considered more beneficial than their alternatives, because they help illustrate a business’s faults and strengths. This can help define managerial styles, bring in future investors, and aid in legal evaluations. This also means most publicly traded companies must complete external and internal audits to follow new business guidelines and legislation.
Audits are critical to the success of capital markets as they help provide credibility to financial statements. Although most companies receive a yearly audit from their accountant. Many lenders will require an external audit in order to continue fiscal transactions. This is so that they can ensure their investment and avoid engaging in fraud. CPAs can conduct audits in several ways.
Primarily audit services are done in one of two ways: internally or externally. We’ll discuss the differences here.
Internal audits are typically conducted by someone employed by the company or the organization itself. These audits tend to be less formal as they are presented directly to managerial staff and board of directors but hold the same credibility. The consulted auditor will use the company’s standards instead of an alternate set to evaluate the company’s operations through an objective lens. As a result, internal audits aid in managerial issues and ensure compliance with laws and regulations.
To understand external audits better, we need to talk about what they are and how they can affect you. Outside parties conduct these audits, and they act as an unbiased review of the financial statements. Presented as opinions, these audits are found at the end of financial statements. As they primarily search for material misstatements or misinterpretations of the original financial information.
There are four basic types of external audit opinions;
- Unqualified Opinions
- Qualified Opinions
- Adverse Opinions
- Disclaimer Reports
Unqualified opinions are the best opinions from the perspective of the company.
Also called clean opinions, it is understood that these types of audits are considered financial statements presented fairly or in accordance with GAAP (Generally Accepted Accounting Practices). They contain no material misstatements, and the auditor is able to complete the entire evaluation. It’s important to remember that this does not guarantee that the statements are accurate, but instead is a reasonable assurance.
Qualified opinions, as conducted by the auditor, will examine the financial statements and decide they are presented fairly except for one issue. These issues can include but are not limited to:
- A singular departure from GAAP, or
- If there is a single scope of limitations
This can mean either physical limitations that will not let the auditor complete the audit or a particular issue that prevented the audit from being completed.
Adverse opinions are when a financial statement is not presented fairly. These can be damaging to companies as they illustrate what has gone wrong with financial statements and offer information explicitly. These audit opinions describe financial misstatements and state there is no reasonable assurance to the financial statement.
Disclaimer reports are when a CPA does not express any opinion. This means a few things. Firstly, if the auditor lacks independence, the auditing CPA will not express an opinion. Meaning, although there was no bias at the beginning of the audit process, there was near the end. If a company finds itself in this type of situation, it will need to hire another auditor.
Secondly, if there is an extensive scope of limitation, where the auditor cannot complete the audit, they cannot express an opinion. Finally, CPAs will refrain from stating opinions if they deem the company substantially uncertain. To be considered substantially uncertain, a company depicts doubt about its future. This could be in an extreme market decrease or a series of lawsuits that damage the company’s prominence. This style of opinion is the most damaging for a company as it demonstrates financial uncertainty.
Audit Services with a Purpose
Now you might be thinking what’s the point to then, other than making your company look bad. Well, the primary purpose of audits service is risk assessment. Risk assessment is vast if you want to ensure growth in your company, so it’s essential to understand your company’s strengths and weaknesses. Under scrutiny, the possible risk factors are inquiring of management, observations, an inspection of analytical procedures, and financial assessments. Understanding the effects of these risks on your company is the cornerstone to presenting your company accurately. With accurate auditing services, you decrease liability and increase company assessments without fear of bias. Stop fearing audits and audit services today, contact your CJFA to learn more.
CJA Forensic Accounting is here for you
CJA Forensic Accounting provides a full range of services for forensic accounting needs including CPA auditing services. Contact us today to learn more about our services, including fraud investigation, dispute services, litigation support, contract compliance testing, false claims, and forensic accounting.