Typically, the mere mention of an audit raises anxiety levels in many employees, with their fear that there must be something wrong, that they may be wrong, or that they may have done wrong—an unnecessarily antagonistic view.
However, ‘proper’ auditing has become a tool in various organizations—not just helping business performance, but also improving policies, governance and processes. We asked Mark Fajiculay, a CPA and a management consultant, to give us some ways that the audit process can be helpful.
He came up with the 4Ps of the role of auditing in businesses as a value-added mechanism in realizing business goals and visions. We will share you three:
1. Prevent fraud
Many of the known accounting and audit fiascos that have occurred in the past few years could have been prevented if proper auditing were in place. Audits bring out red flags—hints of possible anomalous undertakings. Audit also conducts local, regional and industry benchmarking, along with analytical procedures—analyzing trends and variances.
A skilled auditor could thus discover serious shenanigans such as fictitious funds transfers of material amounts, misuse of entity’s resources, conflicts of interests existing among corporate officers and unacceptable business conducts of the Board. The caveat is there are limitations: highly perfected technology-based fraudulent transactions, or collusion among personnel of the entity and connivance with other employees, can be difficult to uncover.
2. Promote a good system of sound internal controls
A good system of internal controls is a product of the company management’s commitment to good governance. This internal control system is a set of detective, corrective, preventive, strategic and directing control mechanisms from documentation to personnel functions and responsibilities to risk management to top management’s actions and principles to the Board’s governance and decision making.
It extends to the top management’s philosophies, the company’s culture, the entity’s environment and the board’s upholding of visions and values. Audit comes into the picture through monitoring the controls, ensuring these are in place and working and notifying the board and/or the management for loopholes and flaws. Key terms are evolving from how audit can help: effectiveness, adequacy and efficiency.
3. Protect company reputation.
Auditing can ultimately help save a company’s reputation as it serves as a third line of defense in preventing financial and operational slippage. The opinion opined from the auditor’s signature is a high form of attestation for financial statements audit as it carries utmost application of auditing standards before being convinced that the said statements are fairly presented.
Being independent ‘in fact and in form’ and ‘external’ to the company’s operations, it adds reliability to the company as someone ‘external and independent’ from their structure attests to the fairness in their financial reporting.
Fajiculay will be conducting a course titled “Exploring and Applying the Philippine Auditing Standards” on Sept. 1, 2017 under Inquirer Academy. Attendance in the course will allow CPAs to earn CPD units.
Inquirer Academy’s Continuing Professional Development program will offer courses for CPAs to develop their technical and professional skills, such as “Understanding and Applying Full IFRS/ PFRS,” “Everyday Communication for Accountants” and “Professional Presence for Accountants.”