Sundaymail Editor
Entrepreneurship Matters
Dr Kudzanai Vere
AUDITING, be it internal or external, is not taken seriously by most small and medium enterprises.
However, it is an important aspect of any business.
What then is auditing?
It is a process of assessing and ascertaining financial, operational and strategic goals and processes in organisations to determine whether they are in compliance with the established guidelines and principles.
The word audit was derived from the Latin word audire, which means to hear, and, thus, an auditor is a hearer.
In its early practice, accountants used to read the statements to the auditor, who would hear and detect issues of malpractice.
Gauging conformity with regulatory norms and rules is one of the drivers behind auditing.
Checking alignment of what is happening on the ground with what was agreed on and is expected (conformity) has and is still the main reason organisations get their financial statements and operational processes audited.
The audit report gives the owner(s) of the business reasonable assurance that the enterprise is being run in an orderly manner and that all necessary systems, processes and regulations are being followed.
There should be adherence to standing statutes and regulations.
When can an audit be done?
This depends on the type of audit to be done.
There are internal audits, which are mostly done by employees and stakeholders within the organisation with a view to evaluating and assessing whether the entity is following the internal processes, controls, rules and regulations, as well as established statutes.
Internal audits can be done as and when management feels there is need to check on a certain area of the business, be it the costing of products and other areas of concern.
It is the first checkpoint to see whether the numbers (accounting) are speaking to each other before the external audits.
They rank lower than external audits, as they are carried out by people from within the organisation, so there could be lack of objectivity, thoroughness, independence and a tendency of covering up for friends.
External audit
On the other hand, external audits are mandatory annual audits done by qualified, independent and third-party reputable firms or individuals.
These are normally tasked with assessing and evaluating the organisation’s compliance with established regulations in whatever operational issues in question, be they financial statements, production processes and others.
It is mandatory for all registered companies to have their financial statements audited.
These audits are normally done annually, though some can be done half-yearly or quarterly.
Audited financial statements are the ones that can be presented to the board of directors at an annual general meeting for decision making and planning purposes.
Financial audit
This is the audit of numbers or finances within an organisation. It entails the examination of financial statements and systems.
These are the most common types of audits, as businesses are established to make money (profits).
This means investors and other stakeholders will be keen to see whether the businesses are being run properly.
They also need some form of assurance that their investment is safe.
These audits unearth financial flaws, other irregularities and inconsistencies in the use and application of some accounting concepts and established principles.
Other audits
Apart from the aforesaid audits, there are other types.
They include tax audits, as well as systems, IT and operations audits.
These have been brought up in recent years due to the complexity of organisational processes and the IT framework and infrastructure.
To maintain smooth operations and assurance that processes and systems are being followed and are in good working order, there is need to do some audits of that nature.
IT risk has become one of the top risks in recent years.
It, therefore, should be minimised by whatever means.
The timing depends on management planning and overall objectives.
Importance of auditing
All these audits are aimed at bringing a systematic and disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes within an organisation.
Financial audits, on the other hand, are aimed at ensuring that the financial statements are prepared and produced in conformity with the generally accepted accounting principles.
It is regrettable that most small and medium enterprises take the issue of engaging auditors lightly, yet they are the most affected by the consequences of non-compliance.
There have been a lot of fraudulent activities and some theft within the sector, and because of lack of proper systems and non-compliance, it has been very difficult to apprehend individuals.
Systems and financial audits are, therefore, important in this sector.
Dr Kudzanai Vere is the managing partner at Kudfort Zimbabwe, an accounting firm that has assisted a number of organisations formalise and standardise operations. He is a published author and transformational speaker in entrepreneurship, personal development, accounting and assurance. Feedback: +263 719 592232 or [email protected]
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