Auditors and equity analysts use financial statements to understand the performance and liability of the company. The assumptions and predictions of professionals help in planning the future. The balance sheet, cash flow statement, and income and expenses statement educate the understanding of the financial position. The three types of financial analysis are horizontal, vertical and ratio analysis. The ratio analysis spotlights the liquidity, solvency, and performance in terms of money, profitability and efficiency. The horizontal financial statement analysis shows the performance with patterns, periodical challenges and growth rates. The vertical financial statement analysis shows the financial figures with a comparison. The base figure for the comparison of the income statement is the total revenue. The base figure for the comparison of the balance sheet is the total assets and liability. The base figure and other elements help in understanding the financial performance. Financial statement audit demands the knowledge of technology and research in the auditors. The new scheme of ICAI enhances the technical knowledge and research skills through the open book examination. The blog connects the thread between the new syllabus and job market challenges to the chartered accountants.
Financial statement audit:
The auditors analyse the statements with three checkpoints. The three stages of auditing are risk assessment, internal testing and external testing. Risk management is associated with technology, ESG, and inventory management. The risk management specialist analyses the laws and strategies related to inventory, ESG and technology implementation. The consultation of risk transformation leaders brings a positive change in the organisation. The internal audit checks the financial reports, data, account reconciliations, inventory cycle, cash flow, and fund flow and irregularities. External auditing checks the bank statements, creditworthiness, letters from suppliers and customers, depreciation, reserves, statements and invoices. The following points explain the purpose and process of financial statement audits.
Risk assessment:
The financial ratios reveal the liquidity, profitability, efficiency and other aspects of a business. The ratios help the auditors to compare the company’s performance with the benchmark performance. The financial statement shows the debt and dividend payments. The liabilities gauge the stability using the financial statement. Before making a financial decision, the management team assess the associated risks in the management decision. The financial statement reveals the corporate story of partnerships and investments. Keeping the financial health and risk as the foundation corporates plan the future process.
Internal testing:
The cash flow shows the activities related to business operations, investment and financial operations. The company generate cash from core operations and controls the investment and financial processes. The balance sheet shows the details of assets, liabilities and shareholders’ equity. The shareholders’ investment shows the residual interest of the owner with the company after meeting the liabilities. The income statement shows the revenue trends, operating profit margin, gross profit margin, and net profit margin. Payroll records show the details of performance management in the company. IT documents reveal the technology and internal IT system of the company. Comparing the core activity, margin, trends and ratios with historical and industrial data reveals the performance. Internal controls reduce fraud activities and enhance continuity.
External testing:
In external testing, auditors test the bank statements, purchase orders, invoices, tax returns, contracts, policy records, minutes from board meetings, financial statements, and inventory records. Each financial statement and document acts as evidence. The evidence shows the activities performed by the company. The auditors examine the documents for specific purposes.
How open book examination of ICAI promote the skills related to financial statement analysis?
Paper six in the CA final is integrated business solutions. This is an open-book examination. The subject enhances the collective knowledge of the professionals with multi-disciplinary case studies. The scenario-based learning and writing enhance the skills of evidence-based understanding. The professionals use technology and research skills to understand the risks, opportunities, performance, and quality. By providing efficient audit reports, the company enhance productivity, and internal control and reduce costs for IT management. The integrated business solution subject educates professionals with a competitive edge.
The different technologies used in financial analysis are as follows:
- The block chain for managing crypto-currency.
- Robotics is for data analysis.
- Python is used for building websites, using machine learning, and analysing financial data.
- R is used to get statistical data and machine-learning algorithms.
- Power BI, Tableau, and Excel are used for data visualisation and analysis.
Benefits of financial statement audit:
Chartered accountants conduct internal audits, external audits, statutory audits and tax audits. The following points throw light on the advantages of financial statement audit.
- Financial statement audit improves reputation and credibility.
- Financial statement audits help identify the growth opportunities in the market.
- Financial statement audits trigger fraud detection.
- Financial statements help to mitigate risks.
- Financial statement audit brings out the gaps in the financial administration.
- Financial statement audit improves the internal control system.
- The banks trust the financial statement with audit approval.
- Financial statement audits pay the way for the IPO, acquisition and merger in advance. The company accepts the challenges with an understanding of the performance.
Conclusion:
Regulatory bodies and investors demand the audit of financial statements towards the end of the year. The external auditor performs the financial statement audit. Financial statement analysis has three steps as follows: collection of information, analysing information and deciding the performance and management of the company. Auditors use technology and techniques to understand the financial statements. The new CA syllabus helps professionals to understand the domestic and international concepts in auditing. The new CA curriculum prepares professionals for a highly competitive world.
