An audit engagement involves more than reviewing a company’s financial statements at the end of the reporting period. Management can expect auditors to examine financial records, assess relevant risks, request supporting documentation, and communicate matters that may require attention.
For businesses working with Singapore Audit Services, understanding the typical audit process can make preparation easier. Knowing what auditors may request and how management is expected to participate can also help reduce delays during the engagement.
Initial Communication and Planning
An audit usually begins with communication between the audit team and company representatives. The auditor may seek information about the business, its operations, accounting systems, significant transactions, and developments during the reporting period.
Management may also discuss the expected audit timetable and identify key contacts within the finance or accounting team.
Understanding the Business
Auditors need to understand the business and the environment in which it operates before determining the nature and extent of audit procedures.
This may involve discussions about:
- Business activities and revenue sources
- Major customers and suppliers
- Financing arrangements
- Accounting systems
- Significant transactions
- Changes in operations
- Relevant internal controls
- Areas involving management judgment
The information gathered helps auditors identify areas that may require greater attention.
Assessing Financial Reporting Risks
Auditors consider the possibility that financial statements could contain material misstatements.
Risk assessment may focus on areas such as revenue, inventory, receivables, provisions, asset valuations, related-party transactions, and significant accounting estimates.
Management should be prepared to explain unusual movements, significant balances, and transactions that require particular accounting treatment.
Providing Financial Records
A substantial part of management’s involvement is providing financial information and supporting evidence requested by the audit team.
Common documents can include:
- Trial balances and general ledgers
- Bank statements and reconciliations
- Invoices and receipts
- Sales and purchase records
- Contracts and agreements
- Payroll information
- Fixed asset schedules
- Tax-related records
- Supporting calculations
- Board or management documentation
The specific information required depends on the nature and scope of the engagement.
Testing Transactions and Account Balances
Auditors perform procedures to obtain evidence supporting amounts and disclosures in the financial statements.
Depending on the circumstances, testing may include examining individual transactions, comparing records with supporting documents, confirming balances, reviewing reconciliations, or performing analytical procedures.
Management may need to explain differences or provide additional evidence when questions arise.
Questions From the Audit Team
Management should expect questions throughout the engagement. These may concern accounting entries, changes in balances, unusual transactions, estimates, internal controls, or business developments.
Prompt and clear responses can help the audit team understand the underlying circumstances and determine whether further procedures are necessary.
Questions do not necessarily indicate that an error has occurred. They are often part of obtaining an appropriate understanding of the financial information.
Reviewing Internal Controls
Where relevant to the audit, auditors may examine internal controls surrounding financial reporting.
Management may be asked to explain how processes work and who performs key responsibilities. Areas may include transaction approvals, account reconciliations, access to accounting systems, segregation of duties, and review procedures.
The extent of control testing depends on the audit circumstances and the auditor’s approach.
Discussing Significant Estimates
Financial statements often contain amounts based on management judgment rather than straightforward calculations.
Examples include provisions, impairment assessments, depreciation assumptions, valuations, and other estimates.
Auditors may ask management to explain the assumptions, methods, and supporting information used to determine these amounts.
Handling Audit Adjustments
During an audit, the auditor may identify differences between the accounting records and the auditor’s assessment of the appropriate accounting treatment.
Management may be asked to consider proposed adjustments and determine how they should be addressed.
Not every identified difference necessarily results in a change to the financial statements. The circumstances, materiality, accounting requirements, and management’s response are relevant to the final treatment.
Communicating Control Issues
Auditors may identify weaknesses or areas for improvement in financial processes or controls during their work.
Where appropriate, these matters may be communicated to management or those charged with governance.
Management can then consider the nature of the issue, its underlying cause, and whether changes to procedures or controls are necessary.
The Importance of Timely Responses
Audit work can take longer when requested information is incomplete, inconsistent, or difficult to locate.
Management can support a smoother engagement by assigning responsible personnel, maintaining organized records, and responding to information requests within agreed timelines.
Keeping an internal list of outstanding audit requests can also help finance teams monitor progress.
Communication With Those Charged With Governance
Significant audit matters may need to be communicated to the board, audit committee, or other appropriate governance representatives.
These discussions can cover significant accounting matters, audit findings, internal control observations, and other issues arising from the engagement.
The nature and extent of communication depend on the company’s governance structure and applicable professional requirements.
What Happens Near the End of the Audit?
As fieldwork progresses, the audit team may perform final procedures and review whether sufficient appropriate audit evidence has been obtained.
Management may need to provide final schedules, updated financial information, explanations of subsequent events, or other requested documentation.
The auditor then considers the evidence obtained when forming the audit conclusion.
Receiving the Audit Report
Once the relevant audit procedures and final review processes have been completed, the auditor issues an audit report based on the engagement.
The report provides the auditor’s opinion on the financial statements within the scope of the audit.
Management should understand that an audit opinion is not a guarantee that a company has no operational, financial, or compliance risks. The audit has a defined purpose and scope based on applicable professional standards.
How Management Can Prepare
Good preparation can make the engagement more manageable. Businesses can begin by ensuring that key accounts are reconciled, supporting documents are available, and significant accounting judgments are documented.
It can also help to communicate major changes to the auditor early rather than waiting until questions arise during fieldwork.
Common Reasons for Audit Delays
Several practical issues can affect an audit timetable.
These may include:
- Missing supporting documents
- Unreconciled accounts
- Delayed management responses
- Incomplete schedules
- Unexplained account movements
- Late adjustments
- Difficulties obtaining confirmations
- Changes in key personnel
Addressing these matters before or early in the engagement can improve coordination between management and the audit team.
Management’s Responsibilities During an Audit
Management remains responsible for the preparation and presentation of the financial statements, maintaining appropriate accounting records, and establishing relevant internal controls.
The auditor’s role is to independently examine the financial statements and obtain sufficient appropriate evidence to support the audit opinion.
Understanding this distinction helps prevent confusion about what the audit team is responsible for and what remains with management.
Conclusion
An audit engagement in Singapore typically involves planning, risk assessment, document requests, transaction testing, discussions with management, review of significant accounting matters, and final procedures before the audit report is issued.
Management can contribute to an efficient process by maintaining accurate records, preparing supporting documentation, responding promptly to questions, and communicating significant business or accounting developments. A clear understanding of the respective responsibilities of management and the auditor can also make the engagement more organized and transparent.
