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Many Kiwi businesses and organisations elect or are required to have annual audits of their financial statements, but often don’t wholly understand what it entails or their preparatory responsibilities. Hawke’s Bay Audit and Assurance Services director Philip Pinckney explains…
Time to read: 6 mins
An audit follows pre-defined standards to provide an opinion on whether a set of financial statements is materially correct.
It’s financial forensics – understanding and analysing information. As auditors we need what we call Sufficient Appropriate Audit Evidence. We have to apply professional scepticism when completing audits – we cannot operate on trust. We often say to the client, "show me".
Click here to view entities that require an audit (opens in a new tab)
Audits provide assurance that financial statements are materially correct and give insights into business risks. Audited financial statements are valuable when it comes to listing or selling a business. The purchaser knows they can rely on the financial statements.
We have a generic checklist, but we take out the bits that aren't relevant and tweak a few things to make it specific to the audited entity. They might include balance sheet reconciliations and supporting information, invoices for expenses and asset purchases, the asset register, revenue contracts, payroll information, lease contracts and board minutes among many other things.
It depends on the entity. Often it's the directors, board, shareholders, bank or government. In some cases, they can be viewed by the general public.
Every financial year, bearing in mind that the year-end varies according to the entity.
It depends on the size of the entity. It could take anything from six or seven days for a small entity, or there might be a team of people working on a large audit for several weeks from commencing the planning to finalising the audit report.
Take time to prepare a robust set of financial statements because, if you rush, you’ll likely make mistakes and may not have all the information to hand. It will then take us longer to complete the audit because we’ll be correcting mistakes and waiting for information. Also make sure you have all your invoices to hand!
Plan well – understand your client and what they do – and know that we can’t necessarily take things at face value.
There’s an old saying, “an auditor is a watchdog, not a bloodhound”. We’re not there to find every fraud. It’s the responsibility of the directors, trustees or governance team to have internal controls in place that prevent fraud and the auditor’s responsibility to verify whether things are right or not. We provide "reasonable assurance", which is a high-level but not absolute assurance that things are right. We do things on a sample basis, so we don’t look at every transaction.
Probably the area we make the most adjustments relate to "revenue recognition". It’s where financial details could be manipulated to benefit the entity or a stakeholder.
Other problem areas are any that are open to interpretation or judgement (such as when income is earned from a contract, or judgement regarding what an asset is worth, and so on).
It depends on the situation. Sometimes it comes down to whether the shareholders or directors want to force the issue. Worst-case scenario, offenders could be prosecuted.
We do find that the "audit expectation gap" is alive and well. Businesses often think the auditors are looking at everything – that an audit extends further than it does or doesn’t cover certain things. For example, if we’re looking at the year to December 2021, we’ll also check the following months to make sure items in there shouldn’t be in 2021. Another misunderstanding is that small entities with fewer transactions might think it won’t take long to tick them off the bank statement, but we’re not just looking at what’s in the accounts, but what should be in them and isn’t – debts that haven’t been paid yet but should still be reflected in the accounts as revenue and debtors – that sort of thing.
We pride ourselves on delivering high-quality audits and fantastic client service but need to maintain our independence and comply with professional standards. In this case the client is not always right. Good clients respect that and those who don't, and want to influence the result unnecessarily or unfairly, won't be our clients for long.
You’re there to do a job and you’ve got to have mutual respect. The best clients are the ones that want to help us do our job.
Our teams are small enough that the partner or the director knows what's going on and is involved and, because we’re part of a larger network, we share knowledge when people are more experienced in a particular area.
We have a reputation for doing good quality audits. Our work is periodically reviewed by external authorities and each other, so quality checks are in place.
We provide a great work culture if you want to join the Baker Tilly Staples Rodway team. For me, the job satisfaction is still there in spades. It comes down to client service reputation. We really want our team to succeed, and we support them with training and mentoring. It's in our interest to develop them and when you have a culture like that, you get good people. If they’re happy, then we're happy and so are the clients.
Contact your local Baker Tilly Staples Rodway office if you’d like help with any of our auditing services or see our Careers page for current vacancies.
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