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Financial Audit and Review

Category: Tax & Accounting Services

Written by Fajri Yudha Pratama on 21/08/2023
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

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Introduction

Financial audit and review are integral processes in the business world to ensure the accuracy and reliability of the financial reports of an entity. This article aims to delve into these practices, highlighting the definitions, differences, significance, and the role played in business operations.

Definition

Financial Audit
Financial audit is a systematic process performed by an independent auditor to evaluate the evidence supporting the financial statements of an entity. Its purpose is to provide assurance regarding the accuracy, fairness, and compliance of these statements with relevant accounting principles and regulations.
Financial Review
Financial review is the process of examining or evaluating the financial condition of an entity or company to assess its financial health, performance, and stability. Financial review involves an examination and evaluation the financial statements of an entity to determine if any material adjustments are necessary. It is conducted by an independent accountant or auditor but offers a lower level of assurance compared to a financial audit.

The Importance of Financial Audit and Review

Financial audits and reviews are essential for ensuring transparency, accountability, and reliability in financial reporting. They help organizations maintain trust with stakeholders, comply with regulatory requirements, and detect and prevent fraud or errors.

The Best Time to Conduct Financial Audit and Review

The best time to conduct financial audits and reviews depends on the specific conditions of the organization and regulatory requirements. Generally, audits are often performed annually after the completion of the financial reporting period. Reviews can be conducted more frequently, such as quarterly or semi-annually, to provide timely insights into financial performance.

Benefits of Financial Audit and Review

Financial audits and reviews offer several benefits to organizations, stakeholders, and the broader business environment:

Enhanced Financial Transparency
Audits and reviews promote transparency to ensure that stakeholders have access to accurate and reliable financial information by examining financial records and transactions.
Detection of Errors and Frauds
Auditors and reviewers play a critical role in identifying errors, irregularities, or fraudulent activities within financial statements to help organizations mitigate risks and strengthen internal controls.

Improved Decision-Making
Reliable financial reporting resulting from audits and reviews enables stakeholders to make informed decisions regarding investments, loans, and other financial matters, contributing to organizational success and sustainability.

Strengthened Stakeholder Confidence
Independent verification of financial statements enhances trust and confidence of stakeholders in the management of the organizations, fostering stronger relationships with investors, creditors, and regulators.

Compliance Assurance
Audits and reviews assist organizations in ensuring compliance with applicable laws, regulations, and accounting standards to reduce the risk of legal penalties or reputational damage.

Operational Efficiency
Audits and reviews enable organizations to streamline operations and enhance overall efficiency through the identification of weaknesses or inefficiencies in financial processes.

Continuous Improvement
Recommendations provided by auditors and reviewers for enhancing accounting systems and internal controls support ongoing improvement efforts, driving organizational growth and resilience.

How to Conduct Financial Audit and Review

The process of conducting financial audits and reviews involves several key steps to ensure thoroughness and accuracy:

Planning Stage
- Define the scope and objectives of the audit or review, considering relevant regulatory requirements and organizational goals.
- Identify key risks, areas of focus, and materiality thresholds to guide the examination process.
- Develop a detailed audit plan or review program outlining specific procedures and timelines for completion.
Preparation and Data Collection
- Gather necessary documentation, including financial statements, transaction records, supporting documents, and relevant policies and procedures.
- Verify the integrity and completeness of data sources, ensuring that information is accurate and up-to-date.
- Establish communication channels with key stakeholders, including management, to facilitate information sharing and address any concerns or queries.
Risk Assessment and Internal Control Evaluation
- Assess the risk of material misstatement in financial statements by analyzing internal controls, business processes, and external factors.
- Evaluate the design and effectiveness of internal controls to identify weaknesses or deficiencies that may impact the reliability of financial reporting.
- Develop strategies to mitigate identified risks and enhance control mechanisms to prevent fraud or errors.
Testing and Analytical Procedures
- Conduct substantive testing of transactions, account balances, and disclosures to obtain sufficient and appropriate audit evidence.
- Perform analytical procedures to evaluate the reasonableness and consistency of financial data, identifying potential anomalies or discrepancies.
- Use sampling techniques to select representative samples for testing when examining large volumes of transactions or data sets.
Inquiry and Confirmation
- Communicate with management, staff, and other relevant parties to obtain explanations, clarifications, and additional information related to financial transactions and events.
- Seek confirmation from third parties, such as banks, customers, and suppliers, to verify the accuracy and authenticity of account balances and transactions.
Documentation and Review
- Maintain comprehensive audit documentation, including workpapers, memos, and supporting evidence, to demonstrate the audit trail and substantiate findings.
- Review audit documentation and preliminary findings to ensure accuracy, completeness, and adherence to auditing standards and procedures.
Reporting and Communication
- Prepare audit reports or review summaries detailing the scope of work, audit findings, conclusions, and recommendations for management consideration.
- Communicate audit results to key stakeholders, including management, board of directors, and external parties, ensuring transparency and accountability.
- Address any concerns or inquiries raised by stakeholders and provide additional clarification or support as needed.

How We Can Help

Financial audit and review is an important aspect in maintaining the reliability and accuracy of a financial statements of the company. Putranto Alliance offers audit and review services tailored to client needs with a commitment to providing the best solutions.

Thorough Financial Audit
Conducting comprehensive financial audits to ensure that the financial statements of the company comply with relevant standards and meet regulatory requirements.
Accurate FInancial Review
Conducting a thorough review of the financial statements using a systematic approach. This helps provide confidence that the financial information presented is accurate and reliable.

Expert Consultation
Providing expert consultation to help clients understand audit and review findings. Then identify areas for improvement and provide strategic advice to optimize the financial performance of the company.

FAQs

How long does a financial statement audit usually take?

The time required for a financial statement audit can vary depending on the complexity and size of the company, but it typically takes several weeks to several months.

What should a company do if it receives an adverse audit opinion?

Steps to take if the company receives an adverse audit opinion include addressing identified issues and improving accounting systems for more accurate financial reporting.

How to choose the right financial audit and review service provider for a company?

Selecting the right audit and financial review service provider involves considering experience, credibility, reputation, and expertise in the relevant industry. Companies also need to ensure that the service provider has the necessary independence, integrity, and qualifications.

Is a financial statement audit mandatory for all companies?

Financial statement audits are not mandatory for all companies. Based on Permendag No. 25/2020

, companies that are required to conduct a financial statement audit are companies with the following criteria.

Limited Liability Companies that have met one of the criteria:

is a Public Company;
whose business is related to the mobilization of public funds;

issuing debt acknowledgment letters;
has total assets or wealth of at least Rp.25,000,000,000.00 (twenty-five billion rupiah); or
is a debtor whose annual financial statements are required by the bank to be audited.

Foreign companies domiciled and conducting business in the territory of the Republic of Indonesia according to the provisions of the prevailing laws and regulations, including branch offices, sub-offices, subsidiaries as well as agents and representatives of such companies who have the authority to enter into agreements; or,

Company (Persero), Public Company (Perum) of State-Owned Enterprises (BUMN) and Regional Company of Regional-Owned Enterprises (BUMD).

How can Putranto Alliance assist in conducting financial audits and reviews?

Putranto Alliance offers customized financial audit and review solutions using a systematic approach and timely methodologies to ensure compliance with industry and regulatory standards while providing valuable recommendations for improvement and optimization of financial performance.

What are the benefits of using Putranto Alliance's financial audit and review services?

The benefits of using financial audit and review services from Putranto Alliance are high confidence in the reliability of financial statements, proper identification of potential financial risks, and recommendations to improve financial processes and controls of the company.

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