Welcome to a short discussion on the top 3 common audit findings and how to address them. 

This content forms part of VIVA Financial Tuition’s ACCA Audit and Assurance course and covers audit fundamentals, ethics, professional conduct, and various stages of the assurance engagement process.

Once an auditor accepts audit engagements they are legally and contractually obligated to report their findings in an independent auditor’s report.

In preparation for real-life competence, the AA exam tests the ability of the student to recognise contraventions in law, regulations, and policies and make suggestions on how an organisation can correct these transgressions.  

‍Audit tests, also known as audit procedures, are the specific actions or techniques auditors use to gather evidence during an audit. All students must know what procedures to apply to make fair and sound audit rulings. 

So in today’s discussion, we unpack common findings that an auditor obtains, their causes, and what can be done to correct the findings. 

Let’s begin with the audit finding that has the greatest implications for organisations and the reputation of auditors alike, inaccurate financial reporting. 

Study Audit and Assurance with VIVA Financial Tuition for only £149

Inaccurate Financial Reporting

‍Inaccurate financial reporting can manifest in various forms. Firstly, errors in recording transactions, incorrect valuation of assets and liabilities, and improper calculation of revenues and expenses.

Secondly, failure to disclose key financial data impacts the understanding of the financial position and performance of the organisation.

Lastly, inconsistencies or inappropriate application of accounting policies and principles will result in misleading financial reports.

Common Causes

The root causes of inaccurate financial reporting often include:

• Human Error: Simple mistakes in data entry, calculations, or misinterpretation of accounting standards.
• Complex Financial Transactions: Difficulty in accurately recording complex financial transactions, such as derivatives or foreign currency transactions.
• Intentional Misstatement: This includes fraudulent activities aimed at presenting a more favorable financial position than what is true, often for personal gain or to meet market expectations.‍
• Inadequate Internal Controls: Poor internal control systems can lead to errors going undetected and uncorrected.‍
• Lack of Expertise: Insufficient knowledge or understanding of accounting standards and principles among the staff responsible for financial reporting.

The implications of inaccurate financial reporting are far-reaching and can negatively affect the company itself, its management, the professional integrity of the auditors, investors, and also the market. 

The discovery of these problems in an organisation requires you as an auditor or internal accountant to put measures in place that will adequately address the findings. 

How to address inaccurate financial reporting

1. Evaluate Internal Controls

Start addressing inaccurate reporting by dealing with the root of it.  Human error and an abuse of power, because one role is holding too much responsibility, are key components of inaccurate reporting. The objective is to communicate control risks and put robust internal controls in place so that this problem can be sorted out at the core. 

• Regular Audits and Reviews: Conduct frequent internal audits to ensure financial data accuracy and compliance with accounting standards. The ability to identify and communicate control risks is a key function of auditing.
• Segregation of Duties: Implement segregation of duties to reduce the risk of errors or fraud. This involves dividing responsibilities among different individuals in the financial reporting process.
• Automated Accounting Systems: Utilize advanced accounting software to automate and standardize financial reporting processes, reducing the likelihood of human error.

2. Enhance Financial Reporting Processes

The next step is to enhance compliance with processes and procedures. 

• Standard Operating Procedures (SOPs): Develop and enforce SOPs for financial reporting to ensure consistency and accuracy in financial statements.
• Continuous Training: Provide ongoing training for staff on accounting standards, ethical reporting, and the importance of accuracy in financial reporting.
• Reconciliation Procedures: Implement regular reconciliation of accounts to detect and correct discrepancies promptly.

3. Implement Robust Oversight Mechanisms

Any strategy aimed at addressing inaccurate reporting must include oversight mechanisms. Examples of these mechanisms include:

• Audit Committee: Establish an independent audit committee responsible for overseeing the financial reporting process and internal controls.
• Whistleblower Policies: Encourage a culture of transparency by implementing whistleblower policies that allow employees to report inaccuracies without fear of retaliation.
• External Audit Engagement: Regularly engage external auditors to provide an independent assessment of the financial statements and internal controls.

4. Leverage Technology and Expertise

• Data Analytics Tools: Use data analytics tools for detecting anomalies and trends that could indicate inaccuracies in financial reporting.
• Hiring Qualified Personnel: Ensure that individuals responsible for financial reporting are adequately qualified and possess a strong understanding of accounting principles and standards.
• Continuous Monitoring Systems: Implement systems for continuous monitoring of financial transactions and reporting processes.

Non-Compliance with Laws and Regulations

Non-compliance with laws and regulations in auditing can take various forms, such as violations of financial regulations, breaches of corporate laws, and ignoring environmental, social, and corporate governance regulations.

Common Causes

Audit evidence suggests that four main causes exist for non-compliance:

• Inadequate Understanding of Laws: Misinterpretation or lack of awareness of the applicable laws and regulations.
• Rapid Regulatory Changes: Difficulty in keeping up with frequent changes in laws and regulations, leading to unintentional non-compliance.
• Intentional Evasion: Deliberate attempts to evade legal obligations, often to gain financial advantages or avoid costs.
• Complex International Operations: Challenges in complying with laws across different jurisdictions for multinational corporations.

There are significant implications of non-compliance with laws and regulations.  Amongst others legal fines and penalties, reputational damage, financial losses, and an erosion of customer trust.

How to address non-compliance with laws and regulations

1. Develop a Strong Compliance Framework

• Establish consistent audits: Regular audits within a professional regulatory framework ensure all operations comply with current laws and regulations.
• Compliance Policies and Procedures: Establish clear compliance policies and procedures that are regularly updated to reflect changes in laws and regulations.
• Compliance Officer or Team: Appoint a dedicated compliance officer or team responsible for monitoring compliance and advising on legal matters.

2. Enhancing Knowledge and Awareness

• Regular Training Programs: Implement ongoing training programs for employees at all levels to educate them about relevant laws and regulations.
• Legal Updates and Communication: Keep all staff informed about legal updates and changes in regulations that affect the organization.
• Ethical Training: Incorporate ethical training to reinforce the importance of compliance and ethical behavior.

3. Implement Effective Monitoring and Reporting Systems

• Internal Reporting Mechanisms: Establish mechanisms for employees to report potential compliance issues or violations internally.
• External Compliance Audits: Engage external auditors or legal experts to conduct periodic compliance reviews.
• Technology-Enabled Monitoring Tools: Utilize technology solutions for continuous monitoring of compliance-related activities.

4. Prepare for Regulatory Changes

• Regulatory Change Management Process: Develop a process to efficiently manage and adapt to regulatory changes.
• Stakeholder Engagement: Engage with regulators, industry groups, and legal experts to stay informed about upcoming changes and best practices.  
• Scenario Planning: Conduct scenario planning exercises to prepare for potential regulatory changes and their impacts.

Inadequate Documentation

Inadequate documentation in the module audit and assurance AA refers to the insufficient or improper recording of financial transactions and processes. It can manifest in several ways:

• Incomplete Records
• Lack of Supporting Evidence
• Poor Record-Keeping Practices
• Non-Adherence to Documentation Standards

Common Causes

The reasons for inadequate documentation often include:

• Lack of Awareness or Training: Insufficient understanding of the importance of proper documentation among staff.
• Resource Constraints: Limited resources, such as staffing or technology, hinder effective record-keeping.
• Rapid Business Changes: Fast-paced changes in business operations that outpace the documentation process.  
• Intentional Under-Documentation: Deliberate under-documentation of transactions, possibly for fraudulent purposes.

To effectively address and prevent inadequate documentation in financial reporting and auditing, organizations should adopt a multifaceted approach.

How to address inadequate documentation

1. Establish Robust Documentation Policies

• Clear Documentation Standards: Develop and implement clear standards for documentation that align with accounting principles and regulatory requirements.
• Document Management System: Implement a document management system that organizes and secures financial records efficiently.
• Regular Policy Reviews: Periodically review and update documentation policies to ensure they remain relevant and effective.
• Employee Training Programs: Conduct regular training sessions for employees on the importance of accurate documentation and how to maintain it.
• Awareness Campaigns: Run awareness campaigns within the organization to emphasize the significance of proper documentation.
• Best Practices Sharing: Encourage sharing of best practices and learning from documentation errors.

2. Implement Effective Control Measures

• Responsibility Assignment: Assign clear responsibilities for document creation, maintenance, and retention.
• Control Mechanisms: Establish control mechanisms to detect and correct documentation errors or omissions.
• Automated Record-Keeping Systems: Utilize automated systems for record-keeping to reduce human error and improve efficiency.
• Digital Archiving: Adopt digital archiving solutions for better preservation, retrieval, and management of documents.
• Data Backup and Recovery: Ensure robust data backup and recovery procedures are in place to prevent loss of documentation.

3. Encourage Continuous Improvement

• Feedback Mechanisms: Implement feedback mechanisms to continuously improve documentation processes and risk assessment practices
• Benchmarking and Industry Standards: Regularly benchmark against industry standards to identify areas for improvement.
• Adaptability to Change: Be adaptable to changes in business processes, technology, and regulations that impact documentation.

In Conclusion

That brings us to the end of our short discussion on the top 3 common audit findings and how to address them. 

These findings and many others are discussed in VIVA’s ACCA AA course. Our expert tutor will provide you with real-life scenarios and examples, as well as guidance on how to answer case study questions dealing with audit findings.

ENROL FOR ACCA AA TODAY

When you sign up today, you will receive:

• 13 hours of tuition
• On-demand video lectures
• Downloadable lesson notes
• Specimen exam debriefs and much more.

Still Unsure?

Why not take a look at what other students have to say about VIVA courses?

READ TESTIMONIALS AND REVIEWS