AUDITING

 

According to the Business Corporations Act, each incorporated company is legally required to have an audit. The law does allow com­panies that have shares, which are not traded on the public market, to waive the requirement for an audit provided that certain conditions are met.

Audited financial statements are the accepted means by which most business corporations report to their shareholders, to bankers, to creditors, and to the gov­ernment. Federal and Provincial legisla­tion in Canada generally requires a limited company to prepare annual financial statements for audit by a qualified independent auditor. Specific legislation may also require the auditor to provide other information in the report.

It is important to note that some companies may be exempted from the audit requirement if all shareholders agree, in writing, to waive the appointment of an auditor.

The objective of an audit engagement is to enable an independent public accountant to form an opinion on whether your company’s financial state­ments present fairly the financial position, results of operations, and cash flows. This opinion is given in the form of a written report which normally consists of three paragraphs. The first, or intro­ductory paragraph, identifies the audited statements and sets out the responsibility of management and the auditor; the second, or scope paragraph, briefly states the scope or extent of the audit and informs the reader that professional standards were used in the audit and that evidence is acquired through inspection, observation, enquiry, confirmation, com­putation and analysis. The last paragraph summarizes the auditor’s opinion based on his or her examination.

The audit consists of an examination of the accounting records and other evidence supporting those financial statements. Through the study and eval­uation of the company’s system of inter­nal control, and by inspection of docu­ments, observation of assets, making of enquiries within and outside the com­pany, and by other generally accepted auditing standards, the auditor will gather the evidence necessary to deter­mine whether the financial statements present a fair picture of the company’s financial position and its activities during the period being audited.