Every business enterprise at its inception takes the form of either a sole proprietorship, partnership or corporation. But regardless of its form, a detailed report of its transactions and undertakings for a certain time frame is required and checked by auditors in order to assess the business’ financial performance. This detailed report is called a financial audit report. It is prepared in order to address the differing interests of all stakeholders in the company, including the stockholders, potential investors, employees, suppliers, regulatory and tax authorities. This set of documents seeks to provide a complete picture of the company’s profitability and present a means to evaluate whether the company is still a productive investment in the long-term.
A report is created at the end of each year, which can be the calendar year or a different financial year, depending on the management decision. Usually the financial year is set to end during the month in which the number of business transactions is at the lowest.
Although only US public companies in the United States are required to file their annual reports to regulatory institutions, private companies are encouraged to do the same. The authoritative institution in the United States is the Securities and Exchange Commission, while its counterpart in the United Kingdom is the Registrar of Companies incharge of overseeing limited and public limited companies.
Financial reports of public enterprises are expected to be reviewed by independent auditors, individuals who are required to test the reasonableness and efficiency of the information written in the reports. Companies employ the service of private external auditing firms in meeting this requirement. Among the documents prepared and examined are the following: a Statement of Financial Position, a Statement of Profit and Loss, a Statement of Cash Flow, a Statement of Changes in Equity, Notes to the Financial Statements and Management Discussion and Report.
Aside from reviewing and performing analysis of the assertions in the financial statements and management reports presented, the external auditors are also included in ensuring the adequacy and integrity of the company’s internal control systems.
In addition, they are also counted to discuss with the appropriate personnel the strategies of the business with dealing and managing risks involved in its day-to-day operations. However, in performing these duties, they are obligated to keep their independence so as not to taint the opinions that they will give at the end of each audit engagement.
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