What do most people think of when they consider the word audit? In our experience, the word primarily induces fear. After all, who wants to hear that they are being audited? In the business accounting world, an audit can conjure up feelings of anxiety because someone might check your work, or you may have to do extra work for the auditor. At Vesta, we understand the fear that comes with auditing. We know that audits can often feel like a punishment, much like a fine, a reprimand, or worse. (Oh my!)
However, in reality, most audits are nothing like what we imagine. The intent and outcome are more often to improve “assurance” that financial systems and reporting are reliable. Since financial results are so critical to shareholders, creditors, investors, and managers, audits provide comfort and assurance of accuracy. Still, audit services, the terms used, and what they entail can be confusing, so let’s provide some clarity on the standard assurance products.
- Audits – Audits provide the highest level of assurance, but not absolute certainty. Even the best audits are not guaranteed to find misstatements or fraud. The auditor is required to obtain an understanding of the entity’s internal control and assess fraud risk. In addition, they are required to perform inquiry and analytical procedures as well as verification and substantiation procedures. The auditor’s report provides an opinion that the financial statements are presented fairly and in the correct framework.
- Reviews – Reviews provide a more limited level of assurance. The accountant is required to perform inquiry and analytical procedures. Their report indicates whether they are aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.
- Compilations – Compilations provide no assurance as to the reliability of the financial results. The lack of certainty is because the accountant has no requirement to perform any regularly conducted procedures in an audit or review. They assist management in presenting financial statements based on what the entity’s goals are. These financial statements may be required, as indicated in the bylaws or by outside institutions such as creditors and investors.
- Agreed-Upon Procedures – Agreed-upon procedures can be considered the “custom” package of auditing. Agreed-upon procedures can relate not only to financial information but also operational processes and/or internal controls. The objective is to perform a test and report the findings. In this process, specific procedures are agreed to between an entity and a CPA firm.
Assurance products provide credibility and reliability of accounting information. They can assist entities in securing external financing from lenders and/or investors, help to uncover errors, limit tax issues due to incorrect payment, and educate owners and managers on the importance of accounting information and processes. Assurance products like audits should not be scary but should be embraced for their ability to provide comfort or corrective action to improve the organization.
With the help of Vesta’s team, you no longer have to be fearful of audits. Contact your closest Vesta office, located in Fond du Lac, Sheboygan, Plymouth, Markesan, and Minocqua, to consult with one of our audit experts.