The term “audit” has been mentioned very often recently. On the general level, this term now conceals a number of various services, from financial audit, to quality audit, forensic audit, up to environmental impact audit or security audit. In general, it can be said that an audit means a review and evaluation of a situation by an independent qualified person.

An audit (in the context of financial accounting) is a standardized process, during which the information stated in a financial statement drawn up by a company is verified. A number of users rely on it (shareholders, banks, creditors, but in some case also the wider general public). By verifying them, the auditor increases the credibility of financial information in the financial statement. The portfolio of services that an auditor can offer the client is much wider, though. They do not all represent an “audit”, as they are sometimes wrongly perceived by the public. In general, the job orders performed by an auditor can be divided into orders for verification, when the auditor expresses an assurance of the quality of the verified information, and other. In the other cases, the auditor often “merely” states the conclusions of the negotiated activities, but leaves the decision about correctness to the reader. The individual services differ from one another mainly in their purpose and the extent of assurance provided.

The work and duties of an auditor

An audit (obligatory or non-obligatory), for example, is a truly complex services, entailing by far not only “verification of numbers in accounting records”. Among other things, the auditor also evaluates the internal control system, carries out identification of possible risks of fraud and provides recommendations for improvement to the accounting entity. The basic purpose of an audit is the increase the credibility and transparency of the financial statement, on which a number of their users rely during their decision-making, from the owners to customers and supplier, and banks. Last but not least, the data from the financial statement are the basis for tax calculation. An audit is thus a service in public interest, and it therefore also provides the highest degree of assurance.

An audit may not always be the best or the most efficient choice for the client, however. Other types of orders exist, which can be adjusted to the specific needs of the client. Another verification service is, for example, an inspection. An inspection provides a lower degree of assurance than an audit, yet it is still sufficiently high and is often used in case the company is not subject o obligatory audit, but its owners want to verify the credibility of the data presented to them. In this case, the main users are usually the owners directly.

From the other services, I would especially like to mention agreed procedures. These are procedures of audit nature, on which the auditor has agreed with the accounting entity. They may, for example, include a verification of the internal control system or a verification of only a selected part of the accounting (for example the inventory). The auditor only presents a report about factual findings to the accounting entity and no assurance is thus required. It is up to the recipient of the report to draw conclusions from the report presented by the auditor. For this reason, only the client is the user of the service, because only he knows the reasons for selection of the given procedures and can thus interpret the results.

The results of an audit

An audit, as well as other verification and other orders, usually only deal with samples due to the scope of documentation. This is for financial reasons, in fact, because obtaining 100% assurance would be enormously costly. Statistics and probability play a great role here. The result of the auditor's work therefore does not mean absolute certainly, but only a reasonable, generally acceptable probability of the auditor's conclusions. In case of audit, for example, this probability is 95%.

Selecting an auditor

When participating in various tenders, we often encounter the fact that the price is the sole criterion for selecting an auditor – is a standardised process, is it not?  Quality is often neglected in the selection. Although an audit is procedurally standardised to a certain extent and follows set rules, the quality of its rendering depends on the person of the auditor to a considerable extent, especially on his experience and the option of consulting selected problems with other experts specialising directly in the given area. Continuous education and international cooperation also play a great role.

How to recognise a good auditor

I sometimes come across the opinion that obligatory audit is only a necessary evil, a duty that an accounting entity needs to fulfil and pay for, without obtaining corresponding counter-value. In my opinion, though, a good auditor is able to offer corresponding counter-value to the company. A good auditor is, to a certain extent, a partner of the accounting entity. He can provide suggestions for improvement of the functioning of the internal control system to the management of the company, thanks to being informed about the regulations he is able to point out intended changes in the legislation to the accounting entity, and so on. Audit or consulting companies are further able to provide a benefit to their clients in the form of offering other non-audit services, mostly tax consulting, consulting in case of corporate transactions, employees training etc. An audit or consulting company thus need not merely be someone, who carries out an obligatory audit of the financial statement once a year. I think that when selecting an auditor, companies should accentuate these other options, too, in addition to the price.

International cooperation

The work of an auditor has international reach increasingly more often. Many companies are part of a supranational group with a foreign parent company. An auditor thus needs to be prepared for orders such as verification of a consolidation package, audit according to other than Czech accounting standards (IFRS/US GAAP), or verification of reported data of the parent company. International cooperation on these orders is important, where you can, for example, consult a foreign partner on specifics of the given country from the perspective of accounting regulations. Fučík & partneři is part of the international Praxity alliance. It is the world's largest alliance of independent accounting and consulting companies.