FAQs

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements have been prepared in accordance with the Companies Act and applicable accounting standards.

In performing audits, auditors are required to comply with International Standards on Auditing issued by the Financial Reporting Council, an independent standard setting body.

Irrespective of whether a company is dormant or trading, where a statutory audit is required, auditors will normally perform the following types of audit work:

• furnish the company with a ‘letter of engagement’, in which the auditor sets out the directors’ and auditors’ respective responsibilities and the scope of the audit;
• obtain a knowledge of the company’s business and industry;
• plan the audit, with a view to, identifying the areas of the financial statements most likely to be susceptible to the risk of error or misstatement;
• evaluate the company’s system of internal control relevant to its financial statements;
• examine, on a test basis, the evidence relevant to the amounts and disclosures contained in the financial statements;
• assess the significant estimates and judgments made by the directors in the preparation of the financial statements;
• determine whether the accounting policies are reasonable and have been adequately disclosed;
• review the overall presentation of the financial statements;
• examine any significant events in the post balance sheet period i.e. in the period between the date to which the financial statements are made up and the date the audit is completed;
• on completion of the audit, provide the directors with a letter setting out any significant issues encountered (e.g. errors, weaknesses in internal controls etc.) during the course of the audit and making recommendations to address the problems encountered (this letter may be referred to as a ‘management letter’);
• issue the auditors’ report to the members of the company