Audits serve as the basis for a financial and economic activity analysis which allows identifying the strengths and weaknesses of a business. Furthermore, the work of auditors allows making informed decisions and preventing administrative penalties. An audit can be compared to a medical examination or technical diagnostics of a car. According to Mactavish et al. (2018), every experienced and successful manager fully understands the need for audits and as a rule, involves specialists to complete such procedures in time. The purpose of this paper is to describe what the staff of a company department should expect auditors to do within the examination.
Since the conduction of audits is significant, it is regulated by several acts. The most important one is The Sarbanes-Oxley Act enacted by President Bush on July 30, 2002 (Chu & Hsu, 2018). The ground is that it has brought the most significant changes to US federal securities laws over the last 60 years (Chu & Hsu, 2018). The act was named after its creators, Senator Paul Sarbanes (Democratic Party, Maryland) and Rep. Michael Oxley (Republican Party, Ohio) (Chu & Hsu, 2018). The Sarbens-Oxley Act might be regarded as a result of numerous corporate scandals associated with dishonest managers of large corporations.
In fact, the regulation significantly tightened the requirements for financial reporting and the process of its preparation. The act analyzed created a new regime for the control and regulation of financial activities for open joint-stock companies (Chu & Hsu, 2018). It also addresses the issues of auditors’ independence, corporate responsibility and financial reporting, conflicts of interests, full transparency of finance, and others (Chu & Hsu, 2018). Moreover, according to the provisions of The Sarbanes-Oxley Act, an Audit Committee must be established in each public company (Chu & Hsu, 2018). Thus, the regulation has a great influence on the procedure of an audit.
On the basis of the above information and the situation given, it might be stated that the company under analysis is conducting an internal examination of financial reporting. In fact, the main purpose of any audit is t is to verify the reliability of the reports, with the major condition for its implementation being the independence of an auditor (Mactavish et al., 2018). The result of such a check is officially recorded in the established form. It consists of an auditor’s competent opinion on the accuracy of the financial information contained in the reports for a certain period (Mactavish et al., 2018). Speaking about internal audits, they are initiated by the management of an enterprise for several objectives. They include identifying problems in the company’s activity and finding ways to improve them and increase the effectiveness and potential of the business (Abbott et al., 2016). Other purposes are determining inconsistencies in the maintenance of tax and accounting records with applicable regulation and identifying risks associated with the control of different services.
The procedure of an audit is difficult because it is usually conducted in short periods. That is why a good organization based on planning is required for such examinations. At the initial stage, auditors define the main goals and objectives, the objects to be studied, and the most effective analytical methods for carrying out an audit (Abbott et al., 2016). Then, the staff of the company should expect an auditor to collect all the necessary documentation, including accounting and tax reports (Abbott et al., 2016). In accordance with the legislation and conditions specified in the contract, the auditor will then check the documents. He or she will also study and evaluate the accounting and internal control systems to make a professional opinion on all areas of financial and economic activities of the audited object (Abbott et al., 2016). The last stage of the procedure analyzed is finding audit evidence (Abbott et al., 2016). In conclusion, the work of auditors consists mainly of working with documents of different kinds and making a report on the results of the examination.
References
Abbott, L. J., Daugherty, B., Parker, S., & Peters, G. F. (2016). Internal audit quality and financial reporting quality: The joint importance of independence and competence. Journal of Accounting Research, 54(1), 3-40.
Chu, B., & Hsu, Y. (2018). Non-audit services and audit quality: The effect of Sarbanes-Oxley Act. Asia Pacific Management Review, 23(3), 201-208.
Mactavish, C., McCracken, S., & Schmidt, R. N. (2018). External auditors’ judgment and decision making: An audit process task analysis. Accounting Perspectives, 17(3), 387-426.