Initiative audit: description, purpose, features and value

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

The activity of any enterprise requires strict control in order to avoid mistakes and their negative consequences, as well as to identify economic crimes and persons associated with them. For this purpose, special checks are carried out - mandatory and initiative audits. Knowing the essence of these concepts, what are their differences and what they are in practice, will be useful not only for economists, accountants and financiers, but also for modern educated people.

Concept and essence

The word "audit" is used to refer to an audit of the economic, economic and financial activities of an enterprise by independent specialists who have received special training and are certified in the manner prescribed by applicable law, as well as state (federal) or international standards. There are several types of such examination, the most common of which are two - mandatory and initiative. audit,which is carried out to comply with the requirements of the law, is called mandatory. For example, such audits should be carried out by joint-stock companies, professional participants in the financial or stock market, insurance companies, banks, etc. The results of this audit are sent to state bodies that oversee the activities of such firms. Things are completely different with initiative audit. From its very name it follows that such a check is not mandatory, but is carried out solely at the request or internal need of the enterprise. The results of this audit are not sent anywhere, but are used by owners or managers to study and make appropriate decisions.

Initiators of the event

The decision to conduct an optional inspection can be made:

• For a joint-stock company - by shareholders, a supervisory board or an audit commission (these bodies are mandatory for such an organizational and legal form of a legal entity), as well as an executive body (board of directors, boards, etc.).
• For a limited liability company, an additional liability company, a limited partnership, a private enterprise, etc. - by the owners, the supervisory board or the audit commission (if their election or appointment is provided for by internal documents). In addition, the decision can also be taken by the executive body (director, manager, president of the company in accordance with the Charter of the legalface).
• For an individual - an entrepreneur - by the entrepreneur himself.

Terms and features

Initiative audit is usually carried out suddenly, i.e. without warning the interested parties (chief accountant, financial director, etc.) in order to avoid substitution of documents or changes in information. Such a check does not last long, without disturbing the normal operation of the enterprise, except for the need to conduct an inventory.

Initiative audit is undesirable to entrust to the same company or firm that advises the enterprise in the course of its activities. This will help to identify errors and inaccuracies that occurred in the course of activities and were missed by the auditor earlier either accidentally or intentionally, since collusion between the accountant and the audit firm is infrequent, but still happens.

Subject of study

Since an initiative audit is carried out exclusively at will, the objects of study are determined by the customer himself. These may include:

• Correct accounting and tax accounting (preparation and accounting of primary documents, chart of accounts and postings, calculation of taxes and fees, etc.).
• Compliance of the terms of agreements and contracts with market conditions.
• Correct preparation and submission of financial and other reports to the fiscal service and other government agencies that control the activities of the enterprise.
• Financial and economic performance of the company (liquidity, financial independence,resistance to market fluctuations, etc.).
• Corporate governance (compliance with legal requirements for the procedure for convening and holding meetings of shareholders or founders, for making decisions, etc.).
• Inventory of stocks and finished products, money and other assets, as well as fixed assets.
• Checking pricing is correct.

When should it be done?

Initiative audit of an enterprise is the work of highly paid specialists, so enterprises do not conduct it on a regular basis, but only when necessary. Such a check may be needed, for example, in the following cases:

• Before the scheduled inspection of the fiscal authorities (tax service).
• To determine the value of the company with the intention to sell it.
• When planning to attract investments, as well as obtaining a large loan or credit.
• For making important business decisions related to the financial and economic condition of the enterprise.
• If there are suspicions about the activities of the chief accountant or director, as well as with the intention to change the persons holding these positions.

Verification results

Carrying out an initiative audit gives the owners and managers of the enterprise the opportunity to control the work of accounting, economists and financiers, as well as evaluate the performance of the entire company. In addition, experts will adviseto eliminate errors and inaccuracies, as well as prompt how to avoid this in the future. Based on the results of the audit, the auditor can also help in making the right decisions both on major transactions of the enterprise itself and on the intentions of the owners to sell it, and merge or take over.

Auditor Report

Initiative audit ends with the transfer to the customer of a full report, which is called the "Auditor's opinion". This document must contain:

• Description of the check object. For example, annual financial statements, the correctness of accounting records, the accuracy of accounting for inventories and finished goods, etc.
• The period of the audit, as well as the time interval covered.
• Regulatory documents that were used in the work of the auditor.
• Calculation of odds.
• Conclusions and recommendations.
• Full information about the auditor, data of his state registration and certification.

The conclusion must be stitched, signed and sealed. The auditor is responsible for the results of the audit and conclusions, so this document can be used in court if necessary, but only if the client and the auditor are not related parties.

To be or not to be?

If the trust in the accountant is 100%, and there are no large turnovers, intentions to sell or major transactions, then how much does a small company need an initiative audit? The purpose and value of suchchecks that it is carried out by high-level specialists, which small businesses cannot afford to maintain on a permanent basis. Recently, the fines of fiscal services and other supervisory and regulatory bodies have been increasing significantly, and no one is immune from errors in accounting or tax accounting. That is why even small firms should conduct an initiative audit at least once a year.