Financial Statement Audits

What does the Auditor do in a financial statement audit?

Completion of the Accounting and Financial Statement Preparation

In a condominium or strata audit, the auditor prepares the year-end financial statements, based on the audit work. The auditor will make any necessary accounting adjustments. In larger public corporations, the financial statements would be done by the organization being audited. But the skills necessary to complete this accounting are not available at a cost effective price for such small organizations. And so the auditor completes the accounting, and the audit.

For this reason, it is important that any adjusting entries are approved by management. As the financial statements are responsibility of the corporation, and not the auditor. The auditor is hired to give an opinion on the financial statements.

Audit Procedures

The auditor must perform audit procedures to meet the requirements of generally accepted auditing standards.

These procedures include sampling on a test basis, the amounts recorded as revenues, expenses, assets, and liabilities.

The auditor only samples on a test basis, because the auditor is only trying to obtain reasonable assurance that the statements are free of material misstatement. Material, meaning a misstatement that would influence a person’s decisions.

The auditor can never obtain complete assurance, but only reasonable assurance. Complete assurance is not possible. For example, if management colluded, it could falsify invoices, that would lead the auditor to believe that expenses had been incurred. It is not possible to overcome this possibility completely, and so the auditor can only give an expression of "reasonable assurance." Nothing can replace the scrutiny of independent responsible persons. And an audit should never be seen as a "replacement" to proper organization or controls.

The auditor will make some assessment of controls and the control environment before designing the audit procedures.

Beyond the test of transactions and balances, the auditor will also review the minutes, and make enquiries of management to identify matters of importance to the financial statements. For example, the auditor will investigate any possible lawsuits or unrecorded invoices.

Completion of the Tax returns

Condominium corporations are generally exempt from income taxes, but a tax return must be filed. And for larger corporations, a non-profit Information return must also be filed.