Obviously, the more transparency we have as auditors, the more we can get, but the main goal is to understand important characteristics about a black box algorithm without necessarily having to understand every single granular detail of the algorithm.” ~ Cathy O’Neil
We have all been through examinations all our lives one way or another; likewise, organizations undertake examinations to present the fairness and correctness of their annual report. And this process is Auditing.
Auditing services are usually conducted by a third party who is independent of that organization. Audited reports are financial statements and reports of the company that includes an income statement, balance sheet, and cash flow statements. The primary purpose of Auditing is to judge the correctness of the financial position of the company and how it reflects in the statements. A competent third party is credible, an inherently important characteristic of an audit.
Different types of auditing services include compliance audit, construction audit, financial audit, operation audit, information systems audit, investigative audit and tax audit.
At the end of the audit process, a third party is expected to generate a report that is free from bias and infringement. Other than ensuring the credibility of the company’s financial reporting, they benefit in many other ways.
1. Compliance. It has been made mandatory for all organizations to undergo auditing as there have been many cases of fraud and profits being artificially fabricated. It provides a sense of relief and accomplishment to business owners as well as authorities such as banks and government bodies when a business meets compliance norms. Apart from heavy penalties incurred by not meeting compliance, businesses risk their reputation for missing compliance standards.
2. Credibility. An Audit review gives confirmation that the fiscal reports are a valid and reasonable portrayal of the company’s present circumstance. This gives important believability and certainty to associates, clients/customers, partners, speculators or banks and even potential purchasers. It is an affirmation that the financial positioning of company is true and free from bias.
3. Enhances business processing. Audit reports also tell organizations to look deeply into their processes and find scope for improvements. It provides an opportunity for businesses to enhance their pre-existing process and optimize their resources. Auditors suggest means on how to overcome possible losses and utilize resources more profitably.
4. Helps in laying out budget plans. Once the accuracy of financial statements is judged, the management can take more reliable and accurate decisions in laying out future budget plans. Financial statements go through a rigorous process of scrutinizing and if cost involved can be optimized the financial plans are revised for the new period. This basic assessment, combined with the evaluator’s budgetary mastery, would then be able to be utilized by entrepreneurs for better monetary arrangements and future planning.
5. Look for fraud and malpractices. Work environment extortion can happen for quite a long time without being detected. An audit is a viable instrument for distinguishing extortion and providing chances to submit misrepresentation. Experienced inspectors who provide auditing services pinpoint shortcomings in a business’s frameworks. They suggest controls and recommend approaches to fortify these to forestall future misrepresentation. Sadly, business history is rife with Audit Organisations who have looked the other way and had to pay the price by discontinuing operations. However, most companies and auditors have learned valuable lessons from these incidents. The reputation of the auditor is dependent on the quality of its audit, analysis, and advice.
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