An audit engagement comprises of an independent evaluation of an organization's financial statements, based on generally accepted standards.

In many cases an organization has external interests in its performance, typically from lending institutions, investors, directors or other governing bodies not active in the day to day operations of the organizations. An audit will provide a level of comfort on the financial statements and the systems, processes and controls in place that may impact the financial statements and operations.

The Canadian market however has a large population of small to medium enterprises, where the owners are working in the business, and are overseeing the operations in detail on a day to day business. In some of these cases, the perceived value of an audit is simply to fulfill a requirement of a lending institution, and forms part of the cost of financing.
With rapid changes within both financial reporting and assurance standards, the cost of audits has increased significantly over the past few years. This has resulted in many owner managed companies to successfully obtain financing from lending institutions, without the requirement of an audit. Depending on the strength of the company, lending institutions are willing to accept a review or a compilation report.

Review and compilations engagements may be sufficient to meet an organization’s regulatory needs, but the independent review of their operations does not form part of the engagement. Over time, as the business evolves and grows, the present systems and controls may no longer meet the needs of the organization, which increases its overall business risk.

The review of the processes and system may be completed internally, as it done by internal auditors in larger operations, however smaller companies typically do not have the resources internally to do so. This has reintroduced the need for specialized audit engagements, where auditors are engaged every two to three years to review and test key processes and controls of an entity; thus providing management with some comfort on the tools they rely.

In summary an audit is a useful tool that can provide more than meeting a banking requirement, and the potential benefits should be discussed with your professionals.

For more information:

Kyriakos (Kirk) Linardakis, CPA, CA,
Tel: 514-842-3911 ext 233