How to Reduce Time Required for Audit Cycle?
Besides engaging audit firms in Johor Bahru to have financial statement audits, some companies may hire internal auditors to run internal audits to assess its internal controls or other processes to guarantee the efficiency of company’s operations. As an internal auditor, if your managers are complaining that the internal audit (Also see How to Ensure an Efficient Internal Audit?) department is spending too much time on the internal audit projects, you need to look into factors that cause an increase in the time required for audit cycle and ways to solve this problem. It is normal if the auditors want to have ample time for planning, performing and recording the audit project. However, what the management wants is timely information and fast results so that it can take necessary actions as soon as possible.
The Importance of Speed
The processes for internal audits (Also see How to Ensure Your Company’s Audit Process Goes Smoothly?) did not change much in the past few decades. However, as the business risks may increase as time passes, the stakeholders and the management do not want to wait for months before they can get the audit results. If the audits are taking too long, the results may come too late that the management can no longer use them or fail to convey business risks that the company has discovered recently. Also, audit cycles which are longer than usual or necessary may reduce the stakeholders’ satisfaction.
Plan the Audit Project Well
A well-planned audit project may reduce the time taken by an audit cycle effectively. The internal auditors should keep the scope of the audit project within rationality and avoid setting too many or broad audit goals. To achieve this, they need to cooperate with the management to improve the audit objectives and specify the time frame. Besides, the audit managers need to make sure that the skill sets the audit staff possesses align with the audit risks (Also see How to Plan for Internal Audits Schedule Based on the Risks?) , as well as inspect the business risks fully in the areas they audit.
Utilise Information Technology
When the internal audit department is performing the audit projects, the audit staffs need to implement effective methods like data mining to increase their efficiency. They should also make use of information technology and other online tools when they are producing the audit working papers. By using technology, the auditors can significantly boost their productivity and save a lot of time when they conduct the audit and develop the final report.
When the audit staff develop audit reports, they have to increase the efficiency of the editing process as well as quality control so that they can impress the stakeholders. Usually, the auditors will provide preliminary audit results to the key stakeholders and management as soon as they have done the initial audit. However, the stakeholders and management will usually determine the time required for an audit cycle by looking at the time the auditors issue the final audit report.
Request for Feedback The auditors may (Also see Audit – Checklist for Compliance Audit) improve their audit process by asking for feedback from the stakeholders and the management. In fact, besides warning the company when any risks arise, the internal department acts as the internal consultant, which suggest the best practices the company should implement to minimise its exposure to the risks. If the auditors improve the audit process by using the feedback, they could be able to reduce the time taken for an audit cycle, remove counterproductive and unimportant procedures, as well as increase the possibility that the audits can meet the expectations of the stakeholders in the future.
Audit -Checklist for the Workplace Audits
Workplace audits refer to methods of assessing a wide range of procedures and policies in human resources as well as other parts of an entity. Such audits aim to determine areas that an organization needs to improve and help to ensure the business owners (Also see Characteristics of Successful Business Owners) to be following the employment laws and regulations. Typically, the auditors from audit firms in Johor Bahru will perform the workplace audits by using the checklists so that they may ensure that their audits cover the essential points which need attention.
The Process of Hiring
Hiring and orientation are among the first areas that the auditors (Also see Introduction to Audit) should include in the workplace audit. In the hiring process, the employers may need to write a job posting, interview the applicants, conduct pre-employment screenings, assess their skills, carry out drug testing, as well as present the job offer. Also, employers need to regulate the hiring process with equal opportunity and anti-discrimination laws. Auditing (Also see Principles of Auditing) the hiring and orientation process makes sure that the company adheres to the employment laws by checking the advertisements and the questions the employer has asked in the interview.
Compensation
The workplace audits will reveal the areas of opportunity in compensation structures in a company. In some countries, the authority may demand the employers to pay non-exempt employees a minimum wage and one and a half times of their pay rates if they work overtime. A workplace audit identifies whether the salaries, bonuses as well as other benefits that the employees obtain meet the standards. Besides, the auditors will determine whether the workers who perform the same tasks receive the same salary as required by law in the workplace audit.
Performance Evaluation
When the auditors carry out the workplace audit, they need to review the company’s process of performance evaluation. Usually, the employers will issue performance evaluations of their employees yearly. In the audit, the auditors should determine the aspects which are subjected to labour regulations and evaluate them. As an instance, the performance evaluation must adhere to privacy and discrimination laws. This means that the workplace audit should reveal the areas that the process of performance evaluation may violate the rights of the employees regarding their gender, race, religion, disability, or other characteristics.
Termination
A company can hardly exempt itself from employee turnover and termination. Nonetheless, unjustified termination is a critical legal issue. Companies can prevent themselves from committing wrongful termination by engaging with the auditors to perform a workplace audit to assess the termination procedures (Also see Techniques and Procedures of Internal Audits) that it is implementing. By conducting the audit, the auditors will make sure that the company is acting within the scope of the law when it notifies a worker about his or her termination and informs the worker about the benefits that he or she may obtain if there is any.
Audit – Checklist for the Compliance Audit
Compliance audits (Also see Types of Audit – Compliance Audit) refer to the formal reviews to identify whether an organisation is operating in compliance with the contractual agreement. Typically, a government regulatory agency, third-party organisation, or an independent audit firm in Johor Bahru will perform such an audit. The compliance audits pay more attention to the operations of a business. In contrast, the financial statement audits (Also see Essential Processes in the Audit of Financial Statements) focus on reviewing whether the company adhere to the related accounting standards or other financial regulations.
Internal Management
The auditors will start a compliance audit with interviewing the management of the company. The individuals who are involved in this process include the operational managers, directors, as well as the business owners (Also see Characteristics of Successful Business Owners). By interviewing them, the auditors will know to what extent the managers or the owners understand the terms and conditions of the contractual agreement. Besides, the business owners might experience a process of reviewing the contracts, which means that the auditors will go through their contractual agreement and review it. Typically, the auditors will create their audit plan by using this meeting. The plan includes certain areas that the auditors will assess or review the company’s processes against its contractual agreement.
Performance of the Employees
The auditors might interview some of the employees to find out their levels of understanding towards their responsibilities to the contractual agreement of the company. Usually, the auditors will perform this process without the presence of manager so that they can obtain honest opinions from the employees without being influenced by their superior. Once the auditors finish interviewing the employees, they may observe them when they are performing their daily tasks. They will examine whether the employees complete the company’s business functions in compliance with the contractual agreement and standard operating procedures (SOP) (Also see What are the Audit Procedures and Its Objective?) of the company.
Reviewing the Processes
To identify whether the company comply with the contractual agreement, the auditors will review its business processes. Usually, they will identify how well it completes its functions as well as determine whether there is any compliance violation in its systems. Violations may include undermining government regulations, wasting economic resources, producing products with low quality, as well as ignoring safety concerns. Typically, the auditors will consider the violations that take place and try to identify how widespread those violations can be in the operations of the company.
Final Analysis
Once the compliance auditors have finished performing the compliance audit, they will have a final wrap-up meeting with the management of the company. This meeting enables the managers of the company to review the auditor’s report before they release this information to the public. Besides, the auditors will give some suggestions to the company so that it may correct the violations or other errors in its processes. This meeting may also include third-party organisations so that they know how well the company is complying with its contractual agreements. When the compliance audit comes to an end, the auditors will issue the official report so that all parties that involve in the agreement and the public can review it.
Differences between Qualified and Unqualified Opinion
When a company engage an accounting firm in Johor Bahru to conduct audit activities, based on the conditions, they may obtain two types of audit opinion (Also see Principles of Auditing) , which are the qualified audit opinion and the unqualified audit opinion.
Qualified Audit Opinion:
The qualified audit opinion is adjusted from the standard opinion because the presented financial statements are not true and fair, or the statements are not fairly presented according to the application framework and standard.
Usually, if the result of the audit testing shows that the financial statements (Also see Employ Accounting Service in Singapore To Prepare Financial Statements ) are presenting a true and fair view, the auditor will issue the standard unmodified opinion.
However, if the result of audit testing indicates that material misstatements are present, the auditor needs to modify his opinion.
Receiving qualified audit opinion from the auditor is not a piece of good news to the management and the firm since this type of opinion might cause the users to doubt the integrity of the management and financial statements of that firm.
The firm will issue the audit report to its shareholders, investors, as well as those charged with governance. This group of stakeholders will question the management of the qualified audit opinion. (Also see How to Ensure Your Company’s Audit Process Goes Smoothly?)
Sometimes, if the bankers require this report to allow them to examine the financial stability of a firm and how the integrity of the management is, they may not offer loan to it, or they will stop extending terms with it.
Unqualified Audit Opinion:
This occurs when the auditors review the financial statements of the company and conclude that they did not discover any material misstatement. This opinion is not the same as a qualified opinion. (Also see Audit – Introduction to Unqualified Opinion)
The auditors will issue the unqualified audit opinion on their client’s financial statements in their audit report when their client has prepared and presented those statements in all material aspect by following the appropriate accounting standards.
Nevertheless, people would use the term unqualified opinion to express an unmodified audit opinion.
If you search for ISA 700, Forming an Opinion and Reporting on Financial Statements, and browse for the term unqualified opinion, you will not see it.
The truth is that the standard uses the word “unmodified”. However, we will usually use both the words “unqualified” and “unmodified”.
When an auditor issues an unqualified opinion, it indicates that the average level of integrity of financial statements and the management who supervise the company is better than those companies that get a modified audit opinion.
This could be helpful to the management if they want to acquire more funds from the banks, investors, as well as the shareholders.
The Income Statement and the Balance Sheet
As a company owner, you need to comprehend the relationship between the financial statements (Also see Introduction to Financial Statements) so that you can analyse your company’s financial status effectively. The financial statements appear in various pages of the company annual report, and the connections between the statements are not clearly stated. Hence, let’s discover the relationship between the income sheet and the balance sheet. (Also see Basics on Balance Sheet )
You will see the relationship between the income statement and the balance sheet when recording an expenditure or a sale using double-entry accounting. (Also see What is Double-Entry Bookkeeping?) In double-entry accounting, if sales increase, liability will decrease or assets will increase, whereas costs will reduce assets or increase liability.
This suggests that one side of every sale entry or expenditure is recorded in the balance sheet, and the other side is recorded in the income statement. Thus, the income statements and the balance sheet are inseparable but reported individually.
To comprehend the relationship between an income statement and a balance sheet, think about the following.
- Your company requires to keep a working cash balance if you make sales and incur expenses in making the sales.
- Credit sales that are recorded in the income statement creates accounts receivables (Also see What are Trade Receivables and Non-trade Receivables?) in the balance sheet.
- To make sales (which is recorded in the income statement), your company should have inventory (which is recorded in the balance sheet).
- To obtain inventory, you need to buy goods on credit and this produces account receivable.
- Depreciation is recorded in the balance sheet and also in the accumulated depreciation contra account in the income statement.
The operating expense (which is recorded in the income statement) is a broad category selling, general expenses and administrative. These expenses appear in many accounts in the balance sheet, such as the accrued expenses account, accounts payable, and more.
From the relationship between the income statement and the balance sheet, we know that every income or expense recorded in the income statement appears in the balance sheet. Therefore, here is a new question, is the income statement the same as the balance sheet?
A balance sheet shows the company finances at one particular time. It consists of three reports that are liabilities, assets and owner’s equity. On the other hand, the income statement reveals all of your company’s incomes and expenses. Its primary goal is to determine the cash flow generated or lost by your company in a given duration.
If you are still uncertain about the relationship between the income statement and the balance sheet, please seek guidance from accounting service in Singapore .
Importance of Statement of Comprehensive Income
Importance of Statement of Comprehensive Income
Statement of Comprehensive Income, also referred to as profit and loss statement ( Also see Profit and Loss Account ) is one of a deliverable you could receive from an accounting service in Johor Bahru. It offers you a summary of your company’s profitability and the direction the company is heading.
Business owners ( Also see Characteristics of Successful Business Owners) would wish to know where their money goes. A Statement of Comprehensive Income is an efficient method of identifying how and where you use the money.
This statement assists a company in evaluating development by summarizing records of profits and losses over a duration, which will provide information to the stakeholders, owners and the management. This could either be prepared monthly, annually or quarterly.
Such records are essential because these are useful in identifying areas or items that the business invests the majority of its resources. It is much easier for the business to work on methods and ponder on alternatives to reduce or minimize the expenditures. For instance, if a company spends most on phone calls, a plan can be made with the service providers to obtain the best deals.
This statement enhances the transparency of business where the stakeholders and the public could access to the financial status of the company when reading together Cash Flow Statement. (Also see Bookkeeping – Cash flow Statement) Such a report also plays a significant role in persuading investors.
In loan, the majority of lenders would wish to read the Statement of Comprehensive Income along with the Statement of Financial Position (Also see Introduction to Financial Statements) , which is the balance sheet of the company. This is a long journey to advice on the business’s capability to repay, and if the financial investment is economically viable.
The Statement of Comprehensive Income is one of the beginning point or the source for an audit task. Clear records make it simpler to explain the financial engagements of any companies to auditors.
The Statement of Comprehensive Income makes it possible for businesses to prepare useful and precise forecasts. Projections are important in every business; it assists the company in protecting itself from preventable losses. Allocations could be made according to the records from the statements.