There are two main types of audit processes:
- The first is conducted within the company and is referred to as internal audit.
- The second involves engaging an external party to perform audit services on the company’s accounts and balances, and to express an opinion through the final audit report.
Reasons for appointing an external auditor for companies or entities
One of the key reasons for appointing an external auditor is the presence of stakeholders such as organizations, government entities, investors, business partners, or other beneficiaries who have direct or indirect interests in the company. This necessitates the engagement of an independent third party from outside the organization, possessing full independence, appropriate qualifications, and accreditation from the relevant professional accounting and auditing authority. The auditor’s role is to examine the financial statements and subsequently communicate the results through an audit report that provides a reasonable opinion on the company’s financial position and performance.
It is important to understand some key concepts related to the audit process:
Concepts associated with financial statement audit services refer to a set of reports or statements that present figures and balances reflecting the company’s results, whether profit or loss at the end of the year. These include statements that show the company’s financial position—its assets and liabilities—a statement outlining owners’ and shareholders’ equity, and a statement of cash flows that reflects the company’s liquidity.
Accordingly, the opinion of a Chartered Accountant on these financial statements enhances the credibility of their results and supports investors and stakeholders in making informed decisions. (These statements must be prepared in accordance with IFRS and the auditing standards adopted in the Kingdom of Saudi Arabia.) It is also important to note that a Chartered Accountant does not “certify” financial statements as commonly believed, but rather expresses an opinion on whether they fairly present the company’s financial position and results of operations.
Certified Chartered Accountant
A Certified Chartered Accountant is a fully qualified professional with the necessary expertise to provide financial statement auditing services. They must be licensed and accredited by the Saudi Organization for Chartered and Professional Accountants (SOCPA), which authorizes them to practice auditing and related services within the Kingdom of Saudi Arabia.
Steps of Financial Statement Auditing
First: Audit Planning
In order for the auditor to perform the audit with the highest quality standards, the process must begin with proper planning. This starts with gaining a thorough understanding of the nature of the entity’s business, including how the documentation cycle begins and ends. The auditor then evaluates the company’s internal control system to determine the extent to which it can be relied upon, as well as assessing the IT systems and related software in use. This enables the auditor to determine the level of risk within the entity, which in turn helps in establishing materiality thresholds and selecting the appropriate audit samples for examination.
Second: Determining Materiality
After assessing the level of risk and the extent to which the entity’s internal control system can be relied upon, the auditor determines materiality. This involves identifying the most significant figures and accounts, as well as the areas of highest risk, in order to design the audit program, select appropriate samples, and proceed with their examination.
Third: Performing the Audit Procedures
Once the sample is selected, the auditor reviews processes and procedures, evaluates the implementation of approved policies, and obtains minutes of board meetings and committees, along with key decisions made by the entity. The selected samples are then examined and analyzed, and any issues identified are discussed with management to provide an opportunity for correction where possible.
Fourth: Evaluating Audit Results
After examining the selected samples based on the audit plan, the auditor evaluates the supporting documents and audit evidence, and prepares a report outlining all identified issues and accounting errors. The report also addresses any deviations from the International Financial Reporting Standards (IFRS) adopted in the Kingdom of Saudi Arabia, as well as any non-compliance with the applicable Companies Law and related regulations.
Fifth: Meeting with Management
The auditor may request a meeting with the company’s management, if there is no objection, to discuss any identified issues or errors. During this meeting, the auditor listens to management’s justifications and explanations, reviews the company’s proposed action plan to address these issues, and agrees on an appropriate timeline for their resolution where applicable.
Sixth: Issuance of the Auditor’s Report
After reaching the final conclusions from the financial statement audit, the auditor proceeds to draft the audit report as the final step. This report represents the final deliverable, in which the Chartered Accountant expresses an independent and objective opinion based on the audit findings.
Other Audit Services
It is important to obtain additional audit-related services beyond financial statement auditing, including but not limited to: agreed-upon procedures, Zakat and tax services, value-added tax (VAT) services, and Zakat objection services. These services should be provided by Accounting Office a certified Chartered Accountant firm to ensure compliance with professional standards and delivery by a highly qualified team.
Importance of Auditing
Auditing, or examination, is the process of reviewing and verifying an entity’s financial records and data to ensure their accuracy and reliability, whether such review is conducted internally by the company’s staff (internal audit) or externally by an independent auditor.
Financial Statement Audit Services