Assurance is the process used in the assessment of accounting entries and financial records. Assurance is a process of verifying the records available in the company as per accounting standard and principle, and it also verifies that the accounting records are accurate or not.
Assurance specializes in assessing and improving the quality of information in a company. It helps in decision making in an organization.
The use of Assurance is to check the accuracy of financial reports. It also assures all the stakeholders that there is no misrepresentation done in financial records, no misuse of funds, no fraud, and no fraudulent activities done in a company or done by the company.
Types of Audits:
- FINANCIAL AUDITS address questions of accounting and reporting of financial transactions, including commitments, authorizations, and receipt and disbursement of funds. The purpose is to verify that there are sufficient controls over cash and cash-like assets and that there are adequate process controls over the acquisition and use of resources.
- COMPLIANCE AUDITS determines the degree of a unit’s adherence to laws, regulations, policies, and procedures. Examples of external requirements include Income Tax laws, GST Laws and the Companies Act and regulations. Recommendations often call for improvements in processes and controls intended to ensure compliance with the laws and regulations.
- INFORMATION SYSTEM (IS) AUDITS addresses the internal control environment of automated information processing systems and how people use those systems. IS audits typically evaluate system input, output, processing controls, backup and recovery plans, system security, and computer facility reviews. IS auditing projects can focus on existing systems as well as systems in the development stage.
- OPERATIONAL AUDITS, sometimes called program or performance audits, examine the use of unit resources to evaluate whether those resources are being used in the most efficient and effective ways to fulfil the unit’s mission and objectives. An operational audit includes elements of a compliance audit, a financial audit, and an IS audit.
- ADMINISTRATIVE INTERNAL CONTROL REVIEWS focuses on the departmental level activities that are components of the major business activities. Areas such as Hire to Retire, Cash Management, Fixed Assets and Inventory Management and their physical security and financial reporting are usually subject to review.
- INVESTIGATIVE AUDITS are performed when appropriate. These audits focus on alleged civil or criminal violations of State or Federal laws or violations of university policies and procedures that may result in prosecution or disciplinary action. Internal theft, white-collar crime, misuse of university assets, and conflicts of interest are examples of reasons for investigative audits.
- FOLLOW-UP AUDITS These are audits conducted after an internal or external audit report has been issued. They are designed to evaluate corrective action that has been taken on the audit issues reported in the original report. The purpose of a follow-up audit is to revisit a past audit’s recommendations and management’s action plan to determine if corrective actions were taken and are working, or if situations have changed to warrant different actions.
- INTERNAL FINANCIAL CONTROL means the policies and procedures adopted by the company for ensuring:
- orderly and efficient conduct of business, including adherence to company’s policies,
- safeguarding of its assets, prevention and detection of frauds and errors,
- accuracy and completeness of the accounting records, and
- timely preparation of reliable financial information.
Aspects to be covered in Audit
- Examination of Accounting System & Internal Control
To ascertain whether it is appropriate for the business and helps in proper recording of all the transactions.
To determine the Nature, Timing and Extent (NTE) of Audit Procedures to be performed.
- Reviewing the system & procedures
To find out whether they are adequate and comprehensive.
- Vouching of the transactions
To ensure authenticity and validity of transactions.
To check the arithmetical accuracy of the books of account
To ascertain proper distinction into capital and revenue items.
- Verification of Assets & Liabilities
To ensure existence and valuation of the assets and liabilities appearing in the balance sheet.
Statutory Compliances
In case of entities governed by some law, rules or regulations, for example in case of audit of a company incorporated under Companies Act, 2013.
- Expression of Opinion
On true and fair view of state of Affairs as reflected by Balance Sheet.
On true and fair view of Financial Results as reflected by Statement of Profit and Loss.
On true and fair view of Cash Flows as reflected by Cash Flow Statement.
- Reporting on Other Matters
As required by the law governing the entity.
Conclusion: – Assurance checks are done on sample basis to give a fair view that there is no gross misrepresentation done in financial records, no apparent misuse of funds, systems and controls are working in a decent manner and proper information is flowing to the management.