Audits and Attestation

Various types of audits are done to provide reliability to users. Here are a few of them that auditors most commonly do.

• Statutory Audit– A statutory audit is an audit by an independent auditor to determine whether the financial statements present fairly with the applicable accounting standards by examining the information such as bank balances, account receivables, and financial transactions that occurred during the period under audit.
• Internal Audit -- An internal audit is an audit of internal control systems to identify the weaknesses in the organization’s processes and control environment to prevent any harm to the organization or its stakeholders. Other focus areas include asset safeguarding, adequate authority division over key control areas, and compliance with internal operating policies and guidelines.
• Stock Audit -- A stock audit is an evaluation of the company’s physical inventory that involves counting and valuing, comparing the quantities on hand with the records, and thereby identifying any discrepancies. Being carried out on behalf of banks and financial institutions, it aims to objectively ensure that the security against which funds are lent by the bank is safe and valued correctly.
• Due Diligence -- It is a process used by potential investors to assess the risk involved in the entity. It includes examining the figures and comparing them, which helps the investors to understand the business’s prospects.
• Tax Audit -- It is an examination of an organization’s tax return to verify its accuracy and compliance with tax laws. The audit process involves reviewing financial records, transactions, and other relevant documentation to ensure that the reported tax information is complete and correct.

A sound understanding of Indian and US laws, regulations, and accounting practices enables Mercurius to assist clients in critical issues like conducting financial, legal, and accounting reviews in mergers, acquisitions, and investments.

An audit opinion or audit report is a formal statement issued by an independent auditor after evaluating an entity’s financial statements. Under U.S. Generally Accepted Accounting Principles (GAAP), the audit opinion assesses whether the financial statements of an entity are fairly presented, in all material respects, in accordance with U.S. GAAP.

The audit opinion is a key component of the audit report, which is typically included in a company's annual financial filings, such as the 10-K. It provides assurance to shareholders, regulators, and other stakeholders about the reliability of the financial statements.

Audit procedures are methods or techniques that auditors use to obtain audit evidence and form an opinion regarding financial statements.

 Auditors perform audit procedures to test various assertions related to the financial statements they are testing.

Audit procedures may include:

• Audit Materiality
• Confirmations
• Payroll
• Representation & Communication Letters
• Fixed Assets
• Audit Sampling

Internal Audits have a broader scope and cover all aspects of an organization, including financial processes, operational efficiency, compliance with policies and procedures, risk management, and IT systems. They are conducted by internal staff, which means they are less independent. Internal audits focus on risk management, internal controls, and operational efficiency.

Statutory / External Audits focus primarily on financial statements. The primary purpose of an external audit is to provide an independent and objective opinion on whether an organization's financial statements are presented fairly, in all material respects, in accordance with applicable accounting standards (such as U.S. GAAP or IFRS). External, independent auditors conduct them.

Here is the checklist of all the aspects covered in the Financial Audit.

1. Assessing the accounting systems and internal controls to ensure they are suitable for the business and help in the effective recording of transactions.
2. Reviewing the system and procedures to identify any inadequacies that could allow fraud and undetected errors.
3. Verify the arithmetical accuracy by verifying postings, balances, etc.
4. Verify the authenticity and validity of the transactions.
5. Distinguishing between capital and revenue items and ensuring income and expenditure correspond to the correct accounting periods.
6. Comparing the balance sheet and profit and loss account statements.
7. Verifying the title, existence, and value of the assets appearing in the balance sheet.
8. Verify the liabilities stated in the balance sheet.
9. Evaluating the result shown by the profit and loss statement to ensure the results are accurate and fair.
10. For company audits, confirm that the statutory requirements have been complied with.
11. Reporting to the appropriate authority whether the statements of account examined present a true and fair view of the performance and profit and loss of the organization.

An audit is generally carried out by a registered auditor who must comply with certain standards. Mercurius is registered under the PCAOB and ICAI.

For a financial audit, the company’s financial statements are prepared in accordance with the appropriate legal and financial requirements. The report is then approved internally. The auditors will need to obtain an understanding of the company and its activities and consider outside factors that may have affected any business during the reporting period.

The auditors will identify, consider, and evaluate any risks relating to the financial performance or position and any internal controls the organization has considered appropriate to mitigate those risks.

The auditor will then consider what has been done to ensure the financial statements are accurate and examine supporting evidence based on the risks and controls identified.

Key points about the Mercurius audit process:

• Understanding the business: Auditors begin by gaining a thorough understanding of the company's operations, industry dynamics, and internal controls to identify potential risks impacting financial reporting.
• Risk assessment: Based on their understanding, auditors assess the key risks that could materially misstate the financial statements and develop audit strategies to address those risks.
• Audit planning: A detailed audit plan is created outlining the procedures to be performed, areas to focus on, and the extent of testing required to gather sufficient evidence.
• Fieldwork: This phase involves collecting evidence through procedures like:
• Reviewing documents and records
• Performing analytical procedures
• Conducting interviews with management and staff
• Performing physical inventory counts
• Evaluation of controls: Auditors assess the effectiveness of the company's internal controls to mitigate identified risks.
• Reporting: Once fieldwork is complete, the auditor prepares an audit report outlining their findings, opinions on the financial statements, and any material weaknesses identified.

In auditing, materiality refers to the significance of financial information or misstatements in the context of the overall financial statements. This concept helps auditors determine whether a discrepancy, error, or omission is large enough to influence the decision-making of users of the financial statements (such as investors, creditors, or regulators). Materiality is considered when determining the nature and extent of audit procedures.

The auditor is not responsible for detecting fraud in the entity. However, auditors are responsible for designing and performing an audit that provides reasonable assurance that the financial statements are free from material misstatements, whether caused by error or fraud.

Auditor’s Obligation Regarding Fraud:

• While auditors are not required to uncover all fraud, they are required to plan and perform the audit with an attitude of professional skepticism, which includes considering the possibility of fraud.
• The auditor must be alert to fraud risks, including management override of controls (i.e., when management intentionally manipulates the financial reporting process) and fraud by employees.

If the auditor identifies or suspects fraud during the audit, they are required to perform additional procedures to investigate and assess the nature and impact of the suspected fraud. Procedures include Inquiring of management and others, analytical procedures, testing controls, and Corroboration of evidence.

Audit evidence refers to the information collected and evaluated by an auditor to form the basis for their audit opinion on an entity's financial statements. It consists of all the documents, records, and other information that the auditor gathers during the audit process to assess whether the financial statements are presented fairly in accordance with the applicable accounting framework (e.g., U.S. GAAP or IFRS).

Auditors should obtain sufficient and appropriate audit evidence by performing audit procedures.

• • Sufficiency measures the quantity of audit evidence based on the risk of material misstatement and the quality of such audit evidence.
  • Appropriateness measures the quality of the audit evidence, i.e., its relevance and its reliability.

These two terms are interrelated and interdependent. Higher reliability may require less evidence.

An auditor combines various types of audit evidence to form a complete understanding of the entity’s financial position and internal controls. The aim is to ensure that the financial statements are free from material misstatement, whether caused by fraud or error.

Yes, our vast audit team consists of experienced Chartered Accountants, ACCAs, CPAs, specialized Audit Managers, and Article Assistants, all possessing sound knowledge of accounting and auditing principles and standards, taxation systems, legal framework, corporate compliance, risk assessment techniques, and automated auditing tools to fulfill our commitments on time and provide our clients quality in audit service.

No, an auditor needs to be independent and objective while performing the audit. It is important to understand that management is responsible for preparing financial statements, while the auditor is responsible for the opinion on those financial statements.

Auditors perform independent evaluations to offer security that information, such as the financial statements, presents an accurate and fair view of a company’s financial performance and position.

Auditor access and analyze the following-

• Adequacy and effectiveness of internal controls
• Reliability and integrity of financial and operating information
• Effectiveness and efficiency with which resources are employed

• Accomplishment of established objectives and goals and,

• Analyze the fiscal, operational, and administrative operations
• Analyse systems established to ensure compliance with policies, plans, procedures, laws, and regulations that could significantly impact operations

At Mercurius, while conducting the audit, we ensure the points above are addressed, and we also take utmost care of the following:

• Deep understanding of client's business
• Robust risk assessment and diagnostic process
• Tailored audits procedures
• Quality-focused
• Efficiency and compliance
• Consistent adherence to pre-determined timelines

The audit steps are based on the company, industry standards, and governing body. However, here is a common step that an auditor will follow in any audit.

1. Planning: Define scope, objectives, and methodology.
2. Notification: Inform relevant departments about the audit.
3. Opening Meeting: Discuss objectives and expectations with management.
4. Fieldwork: Collect evidence, test controls, and analyze findings.
5. Report Drafting: Prepare a draft report with findings and recommendations.
6. Management Response: Obtain feedback and action plans from management.
7. Closing Meeting: Review final findings and address concerns.
8. Final Report Distribution: Share the completed report with stakeholders.
9. Follow-up: Ensure corrective actions are implemented.

Attestation complies with the strict rules set by the Public Company Accounting Oversight Board (PCAOB). It ensures that organizations adhere to relevant laws, regulations, or internal policies and confirms that their operations meet required standards.

In the Attestation process, the auditor verifies the authenticity of documents, such as signatures, identities, and document validity. It's often required for documents that will be used in foreign countries.

Attestation risk is the combination of three components:

1. Inherent Risk: The susceptibility of an assertion (like a financial statement item) to a material misstatement, assuming no internal controls. This risk is higher in areas that are more complex or prone to error.
2. Control Risk: The risk that the client's internal controls will not prevent or detect a material misstatement. This occurs when internal control systems are ineffective or poorly designed.
3. Detection Risk: The risk that the auditor will not detect a material misstatement during their audit procedures. Even with well-designed audit procedures, some misstatements may still go undetected.

Only licensed auditors (Chartered Accountants (CAs)/Certified Public Accountants (CPAs) or Licensed Public accounting firms are eligible to perform attestation in an audit. These professionals must be registered with relevant regulatory bodies and comply with auditing standards.

Mercurius & Associates LLP is registered with the Public Company Accounting Oversight Board (PCAOB) and ICAI. It can perform independent audits and attestations in compliance with laws, rules, and professional standards applicable to public companies.

Only licensed auditors (Chartered Accountants (CAs)/Certified Public Accountants (CPAs) or Licensed Public accounting firms are eligible to perform attestation in an audit. These professionals must be registered with relevant regulatory bodies and comply with auditing standards.

Mercurius & Associates LLP is registered with the Public Company Accounting Oversight Board (PCAOB) and ICAI. It can perform independent audits and attestations in compliance with laws, rules, and professional standards applicable to public companies.

There are three significant types of attestation services, which cover:

1. Examinations: A detailed review that provides a high level of assurance about the accuracy of the information.
2. Reviews: A less intensive assessment than an examination, offering moderate assurance.
3. Agreed-Upon Procedures: Specific procedures are requested by a client to verify particular aspects, with findings reported without assurance.

At Mercurius, we elevate your business credibility with our expert attestation services.

• Reporting on pro-forma financial information.
• Compliance attestation.
• Agreed-upon procedures engagements.
• Reporting on an entity’s internal control over financial reporting

Our commitment to these standards ensures thoroughness, accuracy, and reliability in every attestation engagement.

While both attestation and auditing involve assessments, Audit focuses on identifying gaps or risks within an organization’s processes. In contrast, Attestation evaluates how well the information meets predefined standards or criteria without necessarily uncovering unknown issues.