A third-party review of a company’s financial statements and records can create a favorable position for the business. It does not matter if the organization is large or small. An external audit by an independent professional is beneficial to any business because the evaluation of the company’s financial standings will gauge its fairness.
Choosing an Auditor for Philippine Businesses
What Does an Auditor Do?
These are the roles and responsibilities of an auditor:
1. Provides an opinion on financial statements. Business owners, with or without the help of accountants, keep the books and prepare financial statements. Auditors are hired to make sure that the books and statements follow the generally accepted accounting principles and are free from errors.
2. Understands the business and its environment. Auditors perform initial risk assessment in order to understand the company’s environment, operations, and internal controls. For instance, if the company uses an electronic accounting system, the auditor checks it to ensure that data are not compromised and that data encoded are not GIGO or garbage in, garbage out. Erroneous data, after all, will only mean faulty financial statements.
3. Obtains sufficient evidence to form a valid opinion. Auditors base their opinion on the evidences gathered during the audit. If the company is deemed high-risk, the auditors are expected to gather more information before issuing an opinion. Needless to say, the information gathered must be reliable in order for the auditor to give a proper opinion.
4. Maintains an independent attitude to provide credible opinions and recommendations. An auditor is expected to be an independent entity from the company to be able to provide an unbiased opinion.
Choosing an Auditor
An auditor’s opinion and recommendation are important for the company’s future needs. An external auditor makes sure that your financial statements are correct, that you are doing the correct accounting practices, and that you are able to change whatever errors may have occurred. An audited financial statement is important for tax concerns and various shareholders. Here are some tips on what to consider when searching for an auditor:
1. License to perform and audit. Auditors are usually Certified Public Accountants (CPA) or Chartered Accountants (CA) but there is a specific license to get to be able to perform the audit. Some government offices require that an auditor be accredited by their office. These government offices include the Bureau of Internal Revenue (BIR), Securities and Exchange Commission (SEC), and Bangko Sentral ng Pilipinas (BSP) among others. As the business owner, it is pertinent to check and ask for licenses and accreditations.
2. Independence. As already mentioned, for unbiased report and opinion, the auditor must maintain independence from the company. The auditor must not be related to anyone in the company to ensure that the analysis will come out impartial and fair.
3. Reputation and track record. Every business owner expects high-quality services from its third-party partners, most especially in an auditor whose report is quite important for the business. Check prior engagements and get as much feedback as you can from previous clients.
4. Suitable to your business type and size. On top of a license to perform an audit, an auditor is expected to have academic qualifications, years of external audit experience, and continuing professional development activities. Checking previous auditing gigs is important to gauge whether the auditor has worked with a similar business type and size as yours. If you are in the manufacturing industry, it is ideal that you hire an auditor who has previously worked with other companies in the same industry. Again, reputation and track record comes into the picture.
5. Audit fee. Hiring an external auditor comes with a professional fee, of course, and it does not come cheap. Prepare to negotiate for a reasonable fee, putting into mind the amount of work and expertise required to perform an auditing task.
Choosing an auditor is a daunting task but will prove to be beneficial in the end if you are able to get someone who is compatible to the company.