Audit Procedure for Provision

What is an audit procedure?

Audit procedures also referred to as audit programs involve the procedures, methods, and strategies that auditors implement in order to achieve audit confirmation. It assists them to deduce if the audit objective was fulfilled according to the given data.

Auditing is carried out in three steps:

Step 1 – Recognize the statement claim being tested

Audit procedures are carried out in order to test financial statement claims. Hence, the initial step in the auditing procedure is to recognize the statement claim that would be tested.

Step 2: Planning the audit procedure

Planning the audit procedure before performed helps avoid any risks.

Step 3: Important aspects to consider while finalizing the audit procedure

  • Be Clear – Every step performed should be clear so that a junior auditor can also benefit and be able to comprehend the audit process.
  • Provide Reasoning – Along with the procedure, there should be solid reasoning of the chosen audit procedure. It assures the that the entity has gained goods from an approved purchase order.
  • Practice audit terminology – The terms associated in the audit language can be used like ‘trace’, ‘cast’, ‘agree’, etc.

What is provision?

A provision is a control against profit and it is not an assumption of profit. It is debited to profit and loss. In order to meet a liability, provision is made. It’s known but the amount of it cannot be precisely calculated. One of the best examples of this can be provided for depreciation.

To calculate the real profit and loss, it is required to make provisions. All the provisions are debited to the profit and loss account regardless of the amount of profit or loss. If the amount or the payment timing is undefined then the provisions come under the form of payable, which is harder to audit. In such cases, the auditor needs to:

  • Verify with a discussion with the client whether the obligation truly occurs giving rise to the provision. 
  • Attain approval of the clients’ lawyers to reach the possible consequence and chances of doing payment eventually.
  • Examine following procedures so the issues settle while the audit is taking place.
  • Get a letter of representation from the client, as the matter is centered around decision and doubt
  • Recalculate the provision if possible, e.g. assurance of repairs provisions.

Examples of provisions include:

  • Provision for corrupt and uncertain debts
  • Provision for income tax
  • Provision for conditional liability
  • Provision for unpaid liabilities, etc.

Audit procedure for provision

Auditors should get adequate audit data to determine whether an accounting estimation is valid and that release is suitable. In order to fulfil the task they should follow these steps:

  1. Assess and evaluate the procedure taken by management to progress the estimation
  2. Check the agreements or guidelines for the terms of the contract to achieve a satisfactory responsibility
  3. Analyze messages with clients during the time period to achieve an understanding of the statements previously evolved during the year
  4. Execute reasoned trials to associate the level of contract provision year on year, and equate the budgeted to real provisions
  5. Re-evaluate the warranty provision
  6. Approve the percentage functional in the calculation to the indicated accounting plan of the client
  7. Appraise board minutes to discuss the current warranty assertions, and get the endorsement of the amount delivered

Responsibilities of the auditor during the audit procedure of provisions

It is the responsibility of an auditor to make sure that all the provisions are completed during the year with caution. The following is the significant part of auditors that they perform during verifying provisions:

  • Confirm that provisions are performed with respect to all obligations and contingencies.
  • Make sure that the sum provided is acceptable.
  • Inspect the minutes of the meeting of the panel of executives and the requirements of Articles of Association concerning the provisions to be prepared.
  • Certify that all provisions are performed in consideration to debiting the profit and loss account.
  • Certify that the provisions are consumed only for the aim of which they are produced.
  • Ensure that the financial statements have all the appropriate  provisions

Conclusion:

A company reaches profit only after making essential provisions. If the provisions are insufficient, the profit may be exaggerated and thus surplus may be paid out of capital. On the other hand, if additional provisions are made, the account may not demonstrate the actual and reasonable condition of the dealings of the business.

How to assess the going concern of a company?

Going Concern Concept

There are many different concepts that companies must follow when it comes to accounting. One such concept is the Going Concern concept.

The going concern concept of accounting requires companies to prepare their financial statements based on the assumption that they will stay in the company for the foreseeable future. Staying in a company means carrying out commitments, repaying obligations, achieving objects, etc.

Usually, the foreseeable future is considered the next 12 months from the date of preparation of financial statements.

If a company cannot operate for the foreseeable future, then it must use the break-up basis to prepare its financial statements. This happens when the management of the company intends to liquidate the company or cease trading.

Usually, companies do not need to assess their going concern. However, in times of business downfall, they must assess their going concern.

For example, if due to some internal or external factors, a company cannot continue to make profits or generate enough cash inflows to meet outflows, it going concerned may be questionable. The responsibility to assess the going concern of a company lies with its management.

In order to assess the going concern of a company, its management will need to make judgements related to its future. When making these judgements, the management must take into account all available information about the future.

However, these judgments are based on various uncertain future outcomes of events to certain conditions. Usually, the management makes these judgments based on historical performance information.

However, sometimes, the management can also compare the current and expected performance of the company.

Factors that the management must consider to assess the going concern of a company

There are many factors that the management of a company must consider when assessing its concern. These factors are mostly external, which means the management has to use several tools such as PESTEL analysis to assess going concern.

However, these factors can also be internal. Some of the main factors that management can use to assess the going concern of a company are listed below.

Competition

The management of a company must assess the level of competition of the company. If the level of competition in the industry has significantly risen as compared to the past, it may mean that the company will have a harder time generating revenues and profits.

This, in turn, means that the company may go into losses and suffer cash flow problems, which will affect the going concern assumption of the management.

Demand

The management of the company must also the demand for the products of the company. If the demand of its products has declined, the company will have a difficult time generating profits.

Therefore, the demand of its products will also affect the going concern assumption of the company.

Profits

If a company has a history of being profitable but suddenly starts making losses on a regular basis, then its going concern assumption may be questionable.

This is mainly because of the profit-making ability of a company is one of the key indicators of its success and performance.

Similarly, if a company experiences a downturn in its profits, then its management will also have to reassess its going concern.

Cash flows

While most stakeholders only consider the profit of a company as an important indicator of its performance, the ability of a company to generate cash inflows is equally as important.

If a company cannot generate cash inflows to meet its cash outflow needs, it can face many problems.

Therefore, the management of a company must also assess its cash flows when deciding whether the going concern assumption is correct.

Debts

If a company cannot make profits or keep up with its cash outflows, it will have to resort to using alternative sources of finance to fund its projects. Rising debts can also be a red flag for the going concern assumption of a business.

Not only does increasing debts disturb the capital structure of a company but also comes with high-interest costs for the company. Therefore, it is an important factor when assessing the going concern of the business.

Funding

For a company to remain successful in the long-term, it must properly fund different business areas, especially areas that can affect the long-term success of the company.

These may include research and development, marketing, production, etc. If a company does not properly fund these areas, then it may face problems in the future, which is an indicator of problems with its going concern.

Conclusion

Going concern is an important accounting concept that requires the management of a company to assess whether the company can operate in the foreseeable future, which is generally taken as 1 year.

If a company cannot operate in the foreseeable future, then it must prepare its financial statements on a break-up basis rather than going concern basis.

To assess the going concern of a company, its management must consider several factors. Some of these factors include competition, demand of its products, profits, cash flows, debts and funding.

What to look for when choosing an Auditing firm?

Consider your auditing firm just the same as a business partner. They are considered the same as someone who will be responsible for setting the ground for your company’s success. In addition, you will find yourself working with them time after time.

Set up a meeting prior

Meet face to face. Having a local firm will enable you to set up a meeting with them, if you have such an option, avail it. Like a prospective employee meet-up, this guarantees the Auditing group is both skilled and displays their grooming as well. If you ever get a hunch that having them will only result in stressful communication and drag down environment then, at that point avoid this firm.

Know how big is the firm

Before you connect any expert Auditing firm, you should require some serious energy and assess their believability as you likewise think about the size of the firm. Chipping away at unAudited reports is never a simple undertaking, and a business that needs enough labor will be unable to work superbly. Having a group of experts dealing with your budgetary records is far superior to having one individual endeavor the assignments.

At the point when you draw in a group of experts, each colleague will have the chance to display their mastery, and that assists with guaranteeing that your unaudited reports are processed exceptionally effective and in a precise manner and with an elevated level of skill. Working with a firm that has a sizeable number of experts largely increases the value of your business.

Make sure they are worth it

Normally, ensure the Auditing firm that you are pondering about looks acceptable on paper. Request verification of their preparation and capabilities that affirm them to play out the assessments your company requires. They must have a CPA.

Make sure you are hiring a good Auditor

However you pick, ensure that you have a decent feeling of the qualities and shortcomings of your Auditor. Auditing inspector can be employed freely or through an outsider. Picking the correct Auditor can help you effectively deal with your yearly or quarterly Audits with unwavering quality. Your auditor will turn into an aspect of your company, so look at what qualities you need in your Auditor and what shortcomings would you be able to deal in worse case.

Capacity to adjust

As referenced over, your Auditor will turn into an aspect of your organization; consequently, it is vital that your Auditor can adjust well as indicated by your hierarchical settings. You can skirt this thought on the off chance that you are happy to recruit free Auditors for your timetable organization Audits. Many Audit firms in Dubai offer exhaustive administrations to look at your assorted needs. Review firms like MBG have a specific staff that comprehends singular customer needs to assist you with accomplishing your organization Audit objectives as indicated by your necessities.

Market environment

Market experience speaks gives you information about how many years an Audit firm has worked with customers. When searching for the experience of your Audit, ensure that you talk about their experience to comprehend the degree of their administrations and their dealings with the past customers. Likewise, ensure what you really are looking for in an Auditor and the kind of your needs, after that pick up a good Auditing firm or a freelance Auditor that can fulfil your needs.

Straightforwardness approach 

During the Audit cycle, straightforwardness approach will hold a critical spot. Without this, you will never know about the Auditing measures and their result. In this way, it is significant that you pick an Audit firm that comprehends the correspondence straightforwardness and works with you during the organization Audit cycle to keep it consistent.

Make your organization’s money easy and simple to sort out with a solid Audit firm. The correct Auditor will not just keep a check on your money but in addition provide you with providing you the feedback you need to make a better decision with your organization’s money.

Know about Taxation processes

While drawing in an expert Auditing firm to take a shot at your unaudited reports, you ought to consider thinking about a firm with a group that is specialists in the tax assessment. Inappropriate announcement and documentation of tax assessment can become a huge problem for you and your company and can pull in a penalty if anything goes wrong. Thus it becomes clear whoever you hire, they must be a master of tax assessments.

How to Become a HIPPA Compliance Auditor?

Introduction

Organizations are audited by the Health and Human Services Office of Civil Rights to check if they are following HIPPA. The OCR selects auditors at any time.

Description

What does HIPPA stand for? It is an abbreviation for the Health Insurance Portability and Accountability Act. It is basically a federal law that was given out in 1996 to achieve incremental healthcare reform. The aim of this regulation is to transform the insurance and healthcare sectors by implementing various ways.

For example, HIPPA targets making the administrative process easier, cutting down expenses and paperwork, and enhancing the privacy of the patient’s information.

Requirements for HIPPA Audit:

Six steps need to be followed to become a HIPPA Compliance Auditor. They are explained below.

HIPPA training for employees

This is a crucial component in the HIPPA Compliance requirements. Employees can tend to have a failed audit if they have not been given training or if they do not have experience with the regulations of compliance. It is important that you must record or document your training in order to show the Office of Civil Rights (OCR) that you are capable and devoted to the instructions for employees.

The policies which give the highest priority to education and training should be formed and published as well. It is necessary to make sure that your team is completely trained in front of the OCR in the audit as tough questions regarding the HIPPA Compliance rules will be asked.

Form a risk management plan to conduct the risk analysis

These both elements are needed as well. It is the job of HIPPA risk analysis to search for any security risks within the company. Thus, these potential risks are brought to light by the courtesy of the risk management plan. Security documents should be created while going through the risk assessment. The reports revealed

by the compliance rules should be written, published on paper and store in an accessible area. The rules should be flexible enough to cover all domains of the business, not just a single aspect. For instance, the policies consisting of security rules and HIPPA privacy need to be brought on paper.

Similarly, documents that include the breach notification, physical security, incident response, and IT along with firewalls should be in the spotlight as well. The advantage of including these documents is that a clear direction is provided which can be followed in the operation and it aids in the audit procedure.

Choose a privacy officer and a security assessment

Each business and entity needs to have these two things as directed by the HIPPA. It is not necessary to hire someone new. A responsible person who knows how to manage PHI should be enough. Effort should be properly showcased in meeting the rules.

The business associate agreements have to be reviewed. The officer is also assigned with planning a review of the security policies and conducting a risk analysis on the data security and IT system. In case of any incident or breach, it should be informed as well.

Have an internal audit

This is an effective way to search for any errors prior to the OCR audit. If a habit or routine is formed of conducting an internal audit, all kinds of problems will be brought to light before they become worse. The team should be alert at all times and no pressure should be taken in the review.

In doing this step in the perfect way, it is advised to join hands with an organization that is efficient in data security and compliance. This organization will look into the details of the risk management plan and risk analysis which might go unnoticed by your eyes.

Moreover, a proper review of compliance standards and security is done by the organization which aids a lot. This way, the issues which you might not recognize in the internal risk assessment are highlighted.

Conclusion

In getting compliance with the HIPPA, risk analysis is the foremost and the most important are. The rules of the compliance are crucial to meet all regulations. To go a step further is essential for the HIPPA Compliance. In order to review the IT infrastructure, it is important to work with a HIPPA security Compliance expert.

Figuring the problems on your own and conducting a risk analysis prior to the audit has its own benefits. Before the OCR progresses for the next step of the HIPPA audits, it is necessary to be mentally prepared beforehand. The business and private medical information of the patients should be protected.

What are the Credentials Required to Become Tax Auditors?

Introduction

Auditing has turned out to be one of the most in-demand services across the globe. This is predominantly because of the increased reliance stakeholders now place on the assurance that is provided by these auditors, pertaining to financial statements within the company.

Given the numerous types of audits that are conducted over the normal course of business, it can be seen that all these types target different levels of a surety that customers are looking out for.

When it comes to taxes, it can be seen that tax auditors are high in demand, predominantly because of the fact that taxation tends to be an increasingly complex that is often intimidating for companies. The technicalities that are involved with taxation are perplexing and are often prone to error because of the possibility of miscalculating in this regard.

Therefore, tax auditors are hired by companies, organizations, and institutions in order to get validation regarding the tax returns that have been filed, in addition to the compliance of the law, and any other exemptions that should have been incorporated in this regard.

Credentials Required to Become Tax Auditors

Given the fact that the field of tax audit is a fairly technical field, it makes sense to have credentials and licenses to back up the field itself.

In this regard, it is quite important to ensure that there is clarity regarding the career path individuals are supposed to take so that they are able to optimize their career trajectory and obtain the right credentials that are required to be a certified tax accountant in this regard.

Firstly, in order to be classified as a Tax Auditor, it is necessary to have a bachelor’s degree in accounting or a related field. This is to enable the tax auditors to get a basic understanding regarding the financial statements, as well as the state of affairs of the accounting policies (and overall compliance) within the organization.

Therefore, in this regard, it is rudimentary to ensure that the auditors are equipped with a general understanding of basic accounting principles, that can help them dissect the financial information at hand, based on which they can duly comment on the efficacy of the financial statements that are prepared for the company.

In addition to a basic Bachelor’s degree, there also needs to be a qualification that is specific to the tax subject. This means that there is a need to obtain a professional qualification in addition to the basic degree. In most cases, this professional qualification tends to be a CPA.

This licensure exam is conducted by the Accountancy Board, and it prepares individuals regarding numerous components that prove to be useful for careers relating to accounting and audit.

As far as Tax Auditors are concerned, this professional qualification adds tantamount credibility and volume to the existing state of affairs, primarily because of the fact that it helps users to have an in-depth idea and understanding relating to tax-related affairs, which are highly complex and technical in nature.

Another credential that is required of tax auditors is that of professional experience. As a matter of fact, it is highly important for tax auditors to have a considerable chunk of experience under their belt so that they are able to extrapolate in circumstances that are not explicitly covered in the professional qualification.

Since a very considerable chunk of tax audit is assurance, it is imperative that the tax auditor has experience which can be used in order to gauge tax-related issues in terms of proper materiality.  

As a matter of fact, it can be seen that these are some of the most important parameters that are required for tax auditors to apply the required due diligence in the existing state of affairs.

Conclusion

Therefore, there is no doubt to the fact that tax auditors have a high level of responsibility on their shoulders pertaining to the areas that they need to cover in order to provide a reasonable level of assurance to their clients. It requires technical knowledge that needs to be applied to real-life scenarios in order to ensure that they can give reasonable evidence based on findings of the tax audit.

Hence, in this regard, it is important to ensure that tax auditors are able to understand the given process and the dynamic that is required to comply properly and fully with the stated tax law. The profile and credentials tend to increase over the course of time, and experience tends to be the key factor in this regard.

How to become a Tax Auditor?

Introduction

Taxation tends to be one of the most complex and challenging parts of the accounting division within the company. This is primarily because of the reason that its in-depth analysis, and understanding of the transactions that take place over the fiscal year of the company, and the associated taxes with these transactions.

This cannot be done by simply looking at the tax laws of the specific country, because there are numerous clauses involved that should be considered before presenting a clear cut idea regarding the taxes of the given organization.

Despite the fact that companies tend to hire tax lawyers for this purpose, it can be seen that tax auditors also have a significant role to play in this regard. From an organizational perspective, it can be seen that tax auditors are supposed to double-check and verify if the company has paid the correct amount of taxes, and if there is anything questionable within the financial statements because of which the taxable amount is incorrect.

In addition to organizations, tax auditors also cater to other areas, including governments, institutions, and not-for-profit entities. Since tax auditors act as an intermediary between the government (revenue collection service) and the taxpayer, their responsibility is quite considerable and should be taken very seriously.

How to Become a Tax Auditor?

Tax auditors are now high in demand because of the increasing need for corporations to ensure that they are in compliance with the stated tax law. Therefore, it requires tax auditors to have sufficient knowledge regarding the basic accounting laws and treatments, in addition to tax principles that are used in the respective tax regime.

Hence, it can be seen that the primary requirement to obtain certification as a tax auditor requires a basic degree in relevant education. This includes accounting and finance-related degrees, which are necessary in order for auditors to get a basic understanding regarding the financials (and financial statements) of the companies.

It is imperative that a basic level of understanding is going to enable familiarity relating to financial statements so that these auditors can comment on the financial statements with the required knowledge and familiarity.

Followed by basic graduation in a related field, there are certifications and additional degrees in place that prepare individuals to be regarded as properly certified auditors. These certifications include CPA, and Specific Tax Auditor Certifications, which are licensed, and considered as a credible source of validating that the individual has the required skill set that is required to comment on the viability of the tax audit.

Apart from these certifications, practical hands-on experience is also a very crucial factor in determining the performance, and service protocols of the given tax auditor.

For example, experience as a tax lawyer or tax accountant in an organization can further validate that the individual has the required experience to comment on the tax viability within the organization. This is something that is highly useful for auditing tax-related assignments of various different companies because it strengthens credibility checks for the given individuals.

Therefore, it can be seen that in order to become a tax lawyer, individuals need to pass a learning curve that constitutes basic degrees, certification, as well as practical hands-on experience. Depending on the efforts that go into basic tax audit regimes, it can be seen that validity and integrity begin contributing to a blossomed career as a tax accountant.

In this regard, the importance of being associated with a reputed tax consultancy, or any of the Big 4 Firms is also an added incentive, because it gives individuals an opportunity to nourish their careers for the better outcome.

Conclusion

Therefore, there is no doubt to the fact that becoming a tax auditor does require seriousness on part of individuals who aspire to be recognized in the given domain. However, individuals must also realize that it is necessary to understand the level of responsibility that is associated with the tax measure so that better outcomes can be evaluated in the longer run.

As a matter of fact, it is similar to validating that there are no inconsistencies, irregularities, or issues with the tax returns that have been filed by the company, and this audit tends to reflect all their findings. Hence, it is important for tax auditors to design their testing procedures in a proper manner, which can help them provide reasonable assurance regarding their findings.