For countries like India, the independent audit of financial statements of any company is at most an important report for the various stakeholders of the company. Various decision-making has been done based on the financial statements of the company by all the stakeholders. With ever-increasing compliance and legal requirements on companiestime-limited reports and lack of staff bandwidth, chief financial officers (CFOs) with their teamstruggling to complete the audit process. Some of the main challenges they face in carrying out the audit process are:
- Significant increase in compliance reporting requirements by regulators to bring more transparency to users of financial statements.
- Many companies find it difficult to keep track of the series of changes that occur under various provisions of laws and accounting statements.
- Due to rapid changes in various laws, auditors have to perform additional audit procedures which will require more information from company management and additional time spent on the audit,
- Apart from large companies that have a dedicated team to perform and complete the audit process, usually the finance team that is otherwise responsible for day-to-day operations has to involve and complete the audit process, which in turn leads to bandwidth to handle all tasks at the same time.
- The use of shared resources often leads to the hampering of day-to-day routine business activities or may delay the submission of the response to auditor requirements.
- Due to the continuous pressure of cost control and the availability of the right skills, it has become very difficult for CFOs to complete the audit process.
High expectations from listeners:
With the increase in the number of corporate fraud cases, several initiatives have been taken by the Institute of Chartered Accountants of India (ICAI), the National Financial Reporting Authority (NFRA) as well as the Ministry of Corporate Affairs ( MCA) and the Securities and Exchange Board of India (SEBI) with regard to increased oversight of the work of auditors. In particular, NFRA, the auditor’s auditor, which was incorporated in October 2018 following a series of large-scale corporate frauds and audit process failures discovered, has actively played a essential role in audit quality control.
As a result, auditor expectations are high, resulting in increased reporting requirements in audit reports and also during the audit process:
- Significant increase in reporting requirements in corporate financial statements.
- Regulators have further strengthened the accountability of auditors on various topics. This is evident from the recent changes implemented through several additional reporting requirements under the Companies Auditor Reporting Order, 2020 (CARO 2020), commonly referred to as the ‘Auditor Reporting’;
It is inevitable without the support of the companies or the auditee during the audit process and the timely sharing of information/documentation, which is accurate, correct, usable and relevant, the audit process cannot be carried out /completed within the authorized timeframe and in accordance with the requirements of the auditing standards. And that is why lately we have seen a number of auditor resignations due to unavailability or delay in providing required audit information and documentation. The NFRA, in its audit firm review reports, has observed various non-compliances by audit firms for not following standard auditing procedures during the audit process.
With these challenges often faced by companies as well as auditors, companies are exploring the possibility of outsourcing the audit process in order to overcome the challenges surrounding it. Some industry experts have called this outsourcing model “Pre-audit Support Services”. The objective is to ensure the timely sharing of quality information with the auditors so that the auditor can perform his audit in accordance with the requirements of the auditing standards. In addition, it will lead to the timely completion of the audit process, as well as the efficiency and expertise of the system. Some of the main benefits of pre-audit services are:
- A dedicated audit process team should ensure timely delivery of information to auditors, which should bring efficiency to the audit process.
- CFOs and their team members can continue to focus more on core business activities, including other qualitative aspects of the audit process.
- The inherent element of having this process independently managed by an outsourced organization can help companies quickly detect any non-compliance followed by corrective action.
- Internal company resources can then better manage their day-to-day business activities, even during the audit.
That said, it is the one hour need to bring efficiency into the audit process with the help of a team of experts who will not only manage the audit process but also assist the management as well as auditors to issue accurate financial statements/financial information. with all stakeholders.
The opinions expressed above are those of the author.
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