Financial audit: What is it and why is it important?

A financial audit ensures the transparency and integrity of an organisation’s financial information. Those in charge of carrying out these audits are accounting auditors, highly qualified professionals specialised in accounting and auditing.

To work as an auditor in Spain, or in most other countries around the world, it is essential to have specific training in these matters, such as that offered by the Master Financial Management at Universidad Europea.

Explaining a financial audit

A financial audit is a comprehensive and systematic examination of the financial statements of a company or organisation in order to verify their accuracy and compliance with applicable accounting and legal standards.

Among the objectives of this type of audit are the following:

• Verification of accuracy: to ensure that the financial statements accurately reflect the entity's financial position.
• Compliance with standards: to verify that the financial statements have been prepared in accordance with generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS) or country-specific standards.
• Detection of errors and fraud: identify possible errors, fraud or irregularities in the accounting records and in the presentation of the financial statements.
• Evaluation of internal control: evaluate the effectiveness of the entity's internal control systems and suggest improvements if necessary.

Types of financial audits according to their purpose

There are several types of financial audits, each designed to meet specific objectives and address different aspects of financial management and regulation.

• External audit: is performed by independent auditors who are not related to the audited entity. Its main objective is to provide an impartial opinion on the financial statements.
  
• Internal audit: carried out by the company's internal audit staff. It focuses on the evaluation and improvement of financial management processes and risk control.
• Government audit: performed by government entities to ensure that public organizations comply with regulations and use resources properly and effectively.
• Compliance audit: focuses on verifying whether the entity complies with applicable laws, regulations and policies.

Stages of financial auditing

Financial auditing is a systematic and structured process that involves several key stages to ensure the accuracy and completeness of an entity's financial information.

• Planning: first, the scope of the audit, the specific objectives, the methods to be used and the schedule are defined.
• Gathering information: then, documents, records and other data relevant to the audit are collected and reviewed.
• Audit tests: against this documentation, substantive and control tests are performed to verify the accuracy and validity of the financial data.
• Analysis and evaluation: the results of the tests are analysed and the entity's financial situation and internal controls are evaluated.
• Audit report: Finally, a report is prepared detailing the auditor's findings, conclusions and opinion on the financial statements. This report may include recommendations for improving internal controls and other accounting aspects.

When should a financial audit be performed?

There are certain circumstances in which entities are required to perform an audit of their financial statements:

• By legal obligation: this is the case for listed companies or government organisations, whose accounts must be audited annually.
• By contractual requirement: loan contracts or investment agreements often include clauses requiring financial audits to be carried out.
• Internal corporate governance policies: some organizations have internal policies that require financial audits as part of their corporate governance.
• Change in ownership or management structure: prior to a merger or acquisition, it is common to conduct an accounting audit to evaluate the target entity.

What professional performs financial audits?

Statutory auditors or financial auditors are responsible for performing this type of audit. They are highly trained professionals with specialised knowledge in accounting and auditing.

How to become a statutory auditor

To become an auditor, certain requirements must be met:

• Academic training: hold a university degree in areas related to accounting, economics, business administration or law.
• Specific training: complete specific theoretical training in auditing through a master's degree.
• Professional practice: accredit a period of professional practice under the supervision of an auditor.

If you are thinking about this field, the Universidad Europea offers a wide variety of Master's in Business on which you can acquire all the necessary knowledge to enter the working world.