Financial Audits: A Quick Guide with Free Templates

Job loss.

Insolvency.

Falling asset prices.

Complete market standstill.

Ring any bells?

You remember, as clearly as I do, the economic disaster of 2008. A global financial crisis; what could have caused such an economic catastrophe?

One hypothesis: Financial audit failures.

As concluded by the Financial Crises Inquiry Commission (FCIC), financial audit failures were found to have played a significant part in the financial crash.

Just like the FCIC, we at Process Street understand the importance of standards enforced by financial audit processes.

This article has been structured into two sections. The first section looks at the financial audit. The second section considers the International Standards on Auditing (ISA).

The ISA standards are a specific set of rules that operate globally.

Here’s a more thorough breakdown:

• The financial audit: What are financial audits?
• The financial audit: What are the International Standards on Auditing (ISA)?
• The financial audit: The benefits of International Standards on Auditing (ISA)
• How you can use Process Street to help with your external auditing processes
• ISA audit checklist

In the last section of this article, you will get your hands on our nifty ISA audit checklist for free.

You can use this template to conduct an internal check on your finances audits against the International Standards on Auditing. This checklist will save your organization a heap of time, worry, and money.

The financial audit: What are financial audits?

A financial audit evaluates an entity’s financial information, to ensure that it abides to specific criteria. The purpose of a financial audit is to provide reasonable assurance that financial statements are accurate, complete and devoid of fraud. Financial audit information is used by investors, regulators, directors, and managers.

You may have noticed in the definition above, I italicized the term reasonable assurance. I did this to make one thing clear: financial audits do not guarantee assurance to set criteria due to the prevalence of human error.

Human error plagues business operations and financial audit processes are not an exception. The key is to get the best assurance level possible, which means to minimize human error. But how would you do this?

Fortunately for you, we at Process Street have an answer: reduce human error by using checklists.

There is a stack of evidence supporting the notion that checklists significantly reduce human error. This hasn’t gone unnoticed.

For example, checklists are used in the medical industry. Checklists reduce human error in cardiac operating rooms and diagnostic procedures.

The Chernobyl disaster of 1986, the biggest nuclear catastrophe to date, was the result of six critical human failures. Checklists are now standard. They are used to mitigate human error in nuclear power plants.

The conclusion is clear: Increase the assurance of your financial statements by reducing human error. Do this by conducting financial audits using a checklist approach.

The financial audit: Internal financial audits and the benefits they bring to your business

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There are many different audit types. An internal financial audit is one audit type that is entirely in your hands as a business owner. The internal audit acts as your in-house check. Internal audits continually evaluate your financial processes, documentation, and records.

Utilizing the internal audit can give you peace of mind, as you are reasonably assured your financial business operations are conducted as per strict international standards.

What are these international standards?

Well, standards are the rules. Specifically, these rules have been set and agreed upon by various international organizations and external regulatory bodies. Theses rules provide reasonable assurance that financial statements are accurate, complete and devoid of fraud.

If you read my previous article covering audit procedures, then you will understand why internal audits are important. Internal audits benefit your business, the benefits of which I have detailed below:

• Internal audit benefit 1: Measure practices and processes against proposed procedures to make corrections
• Internal audit benefit 2: Reduce the risk of data breaches and other cybersecurity concerns
• Internal audit benefit 3: Protect your internal network
• Internal audit benefit 4: Enable you to stay up to date on governmental regulations to maintain compliance
• Internal audit benefit 5: Monitor mobile technology security and efficiency

For more information on internal audits, see my previous article on Audit Procedures: A Quick Tour with 19 (Free) Templates.

Remember when we discussed why, in a given audit, only reasonable assurance is attainable due to human error? Discussing how you can remove this human error by utilizing a checklist approach for your financial audits?

Here’s one of our internal audit checklists, namely the financial audit checklist given below.

By using our financial audit checklist, you can be content knowing you are employing a perfect combination for your financial information to be on point.

• Internal audit: ✅
• Checklist format: ✅

Our Financial Audit Checklist has been designed with you in mind. Conduct your internal financial audit with maximal assurance.

Our financial audit checklist will act as your internal guide.

Let it aid you through the internal financial auditing process for your business. This checklist is free and ready for you to use right away.

Click here to access our financial audit checklist

In the next part of this article, we turn our attention to another audit type, namely, external audits.

The financial audit: External financial audits and the benefits they bring to your business ✒️

External financial audits are those that will provide certification of an organization’s financial statements. Certification is required by potential investors, lenders and all publicly-held businesses. An external financial audit examination will be conducted by an independent accountant.

External financial audits offer several benefits for business owners, as detailed by Chron.com:

• Provides validity: Objective opinion is provided on the business accounting processes. Insight from professional accountants is provided. This ensures the accuracy and validity of accounting information.
• Discovers errors: Errors that would otherwise impact financial trends and decision making processes.
• Limits legal and tax issues: Inaccurate or fraudulent accounting information can be identified. Incorrect accounting information that would otherwise increase the tax liability.
• Educates the business owner: The importance of business accounting information is communicated, with up-to-date material.

Like internal audits, external audits follow a set of standards. These standards will differ from country to country. In the U.S. Generally Accepted Accounting Principles (GAAP) act as the highest authority on accounting standards.

Looking on a more international scale, there is another set of financial audit guidelines to consider. Due to their broad applicability, this is where we now switch the focus of this article. The standards that I am referring to are the International Standards on Auditing (ISA).

The financial audit: What are the International Standards on Auditing (ISA)?

The International Standards on Auditing are internationally set guidelines issued by the International Federation of Accountants (IFAC). These standards act as a professional reference point to assess the financial information of a given entity.

The standards align financial auditing processes around the globe. A distinction must be made between these international standards and local/country-specific standards. Such a distinction begs the question: why do we need an international set of standards?

Surely, country-specific standards acting on a smaller scale would suffice?

In short, the answer is no.

You see, international standards for auditing processes bring benefits otherwise missed from more specific, localized auditing standards – keep reading to find out these benefits.

The ISA Audit series is the result of a long and difficult process, as you’ll learn by reading on. But the investment was made, and the end result was a landmark moment in financial auditing procedures. Today, ISA represents the leading international body for financial audit standards.

International standards on auditing timeline (a brief history) ️

1969 is a key date, marking the publication of the reports dedicated to international auditing processes. The Accountants International Study Group were the initiators of this groundwork. This group compared the situation across Canada, the U.K., and the U.S.

Four years later, through hard graft and a great deal of research, the International Standards Committee was established.

It wasn’t until 1980 however, that the International Auditing Guidelines were produced. Another 11 years is added on top of this before the issue of the first International Standards on Auditing (ISA).  This ISA series of reports, devised in 1991, has remained that standard for financial auditing to this present day.

In the image above, that there is a significant reference to the book International Auditing Standards by Maurice Moonitz.  Moonitz’s book ranks as a pinnacle moment in the history of ISA audits. The publication, grounded in comprehensive research, makes a strong case for the use of international standards.

So what benefits do international standards provide to financial auditing procedures?

The financial audit: The benefits of International Standards on Auditing (ISA) ️

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We support continuing work to achieve convergence to a single set of high-quality accounting standards – The G20, G20 Leaders Declaration

There is near-universal support for international standards on financial auditing processes. The benefits brought by having a main, central body of high-quality global accounting standards are detailed below:

Benefit 1: International Standards on Auditing bring greater transparency

The international comparability and quality of audit information are enhanced. This means investors, lenders and other market participants can make more informed economic decisions.

Benefit 2: International Standards on Auditing bring greater accountability

Accountability is strengthened. The information gap between capital providers and those who have entrusted their money is reduced. Information is provided to hold management to account.

Benefit 3: International Standards on Auditing bring greater efficiency

Opportunities and risks are identified on a worldwide scale, improving capital allocation. You can think of the international standards for accounting as a single language. Hence advantages that come with using a single business language, also apply here. Communication is more effective and easier, this lowers international reporting costs.

Benefit 4 International Standards on Auditing remove cultural influences

Cultural inputs to financial auditing processes are removed for universal appeal. For example, the GAAP standards – as previously mentioned – are dictated by U.S. business firms reflecting the needs of American businesses. Such country-specific influences are removed with international standards.

Benefit 5: International Standards on Auditing eases financial auditing for multinational firms

Many organizations operate on a global scale. This makes it difficult for financial auditors to assess financial information operating across many countries. Different countries and regions have particular systems in place to be consulted. An international set of auditing standards removes differing systems. One single standard can be used to analyze financial information.

How you can use Process Street to help with external auditing processes

So far, in this article we have covered:

• The financial audit, with a definition of what a financial audit is
• The difference between an internal audit and an external audit, and the benefits the two types of audits can bring to your business
• Focused on the International Standards on Auditing. We have discussed the ISA standards history. We have learned the benefits international standards bring to your business

The aim, supported by many, is to have a universal set of financial auditing standards. The goal of a universal set of standards is to benefit organizations, lenders, and investors across the globe. If you would like to adopt these international auditing standards, then you have come to the right place.

You can use Process Street to help you implement International Standards on Auditing in your business today.

As a top business process management tool, Process Street is superpowered checklists. Use our checklists to make sure your compliance is in-line with relevant regulatory standards. In this instance, we are referring to the International Standards on Auditing.

How are our checklists superpowered?

Our checklists take the simple tick-box approach that has been spiced up to increase use-value. We have done this by adding the following features:

• Stop tasks to ensure task order
• Dynamic due dates, so no deadline is missed
• Conditional logic, creating a dynamic template that caters to your needs
• Role assignment, to ease task delegation within your team
• Approvals, allowing decision-makers to give the go-ahead (or rejection) on important items. In addition, necessary comments can be provided

This last feature, approvals, is game-changing. If you haven’t used it before, don’t fret. Just check out our Approvals: How to Streamline Decisions-Making in Process Street article. In this article, you will learn exactly what approvals are, why they are incredibly useful, and how to use them.

By using our checklists, you can increase the efficiency, productivity and effectiveness of your financial auditing processes. For those of you that are unfamiliar with Process Street and our offerings, check out our Monthly Webinar: An Introduction to Process Street below, for further insight.