Audit service, especially in Cyprus, is highly understated.
Ways in which an audit can assist management
Audit reports and analysis are not just an annual necessity but a tool for fixing operational inefficiencies and whistle blow possible financial setbacks.
Audit is an annual statutory requirement in Cyprus, and most of the clients consider it as an obligation rather than a tool. It is a compliance service enforced by law. However, it also provides a number of other indications which can be used by management for improving their business.
Let's set out below a number of ways in which an audit can assist management in identifying operational inefficiencies:
- One of the main processes of the audit is the preparation of analytics, which compares the current year's results and the company's financial position to last year's performance. This process can identify major variances which act as indicators of major problems in a specific area for a specific department or a cash generating unit (CGU).
- Journal entries assessment is a major testing area for the audit whose goal is to identify any completeness issues or unexpected non-routine journal entries. It is a vital tool for identifying fraud in every business and can help management understand the source of fraud and effectively deal with it.
- Fraud risk in revenue recognition is one of the most crucial risks during the auditing process. For example, overstatement of revenue can be used by managers in order to trigger their bonus payments. The audit process can identify fictitious invoices and acts as an obstacle to this type of fraud.
- Substantive analytics, which is also a major tool in the arsenal of auditors, can assist management in identifying weaknesses in each department through a comparison of financial and non-financial data. The auditors, for example, can use non-financial data to make projections for future economic performance. As a result, any inconsistencies can trigger the need for further examination.
- Every business operates daily through the help of controls that serve as a reference point. Sometimes, these controls are formal, but especially in Cyprus, a lot of these controls are informal. Despite the type of controls, the audit team analyses these controls by performing walkthroughs and tests annually on a rotational basis. As a result, the audit is directly helping management in testing these controls and identifying significant problems.
As we can see, the role of auditors is not just signing an audit report to assist management in complying with the legislative framework but also to help management in a number of ways in their assessments and future projections, which most of the time this practice is being ignored.
It is important for companies to find audit firms which can understand their needs and be able to enter to management's position in order to maximize the benefit of an audit engagement.
As RSM, we have our own philosophy and approach when dealing with customers. The principle we embrace and follow is "The Power of Being Understood."
Our goal is to understand management's needs and problems and help them identify possible drawbacks in their business operations and maximize their profitability. Our professional team of auditors has the knowledge and expertise to assist all types of businesses in a number of different industries.
Also, you can subscribe to RSM Cyprus Business Insights and News to stay up to date on corporate insights and updates that may affect your business operations or personal affairs.
Author: Sotiris Anastasiou, BA(Hons), ACA, Partner