To get a better understanding of the audit process, we can take a look at the definition of an audit. Audit – “an official inspection of an organisation’s accounts, typically by an independent body”. An efficient audit is one that reduces the audit risk to the targeted level, ensures that there are no material errors contained in the financial statements and gives the stakeholders an independent reassurance that their interests are taken care of.
Due to the nature of testing (samples tested) and inherent limitations, an audit is not a 100% confirmation that the financial statements are free from all misstatements and that there is no fraud involved in the company. The objective of an audit is to give reassurance that the information provided to stakeholders by management are free from material misstatements. Due to the focus on specific areas of key legislation, the audit also does not guarantee that all legislation has been complied with even though during the audit fraud may be identified.
The goal for management is to get an unqualified audit report, meaning that the financial statements are free from material misstatements. There are no findings made by the auditor on the management report and the auditor identifies no material findings on non-compliance with legislation. To ensure an unqualified audit report, management is required to uphold high-quality governance, ethical leadership with appropriate policies and procedures in place and ensure financial and performance management of a high stand is maintained.