Is Audit a Financial Service? A Comprehensive Guide

Audit services are considered to be an important aspect of corporate finance and governance by contributing towards transparency, accountability and compliance. However, the question surrounds us, is audit a financial service? The response would be yes, audit definitely comprises an essential ingredient of financial services and the impact is far-reaching to the businesses, investors as well as the regulatory authorities. However in this article we focus on this classification and look more closely at the financial aspect of audit, its pertinence and the key roles that it plays within the financial system.

Knowing the essence of Financial Services

Financial services refer to a great variety of professional services linked to the handling, investment, transfer, and depositing of money. This involves banking, insurance, assets management and most of all accounting and auditing. Audit is also included in this category since it measures and analyzes the financial statements and disclosures in an organization directly.

Auditors look at the way companies record, summarize and report about their financial information. The service is vital in assisting stakeholders, such as investors, creditors, and authorities in delivering representations about the financial position of a company that are right, reliable and fair.

Financial Purpose of an Audit

The main aim of doing an audit is to give assurance that the financial statements of a company are not materially misinformed and this can be through fraud or error. It is done by performing a systematic audit of the financial records, transactions, internal controls and document supporting information.

Audits are beneficial in assisting:

• Cross check financial correctness
• Avoid financial cases of frauds
• Accounting standards must be followed
• Enhance investor confidence
• Enhance proper financial reporting

Audit outcomes affect the credibility of financial reporting hence it is part and parcel of financial service delivery and corporate finance strategy.

As a Regulated Financial Service Audit

Financial authorities and other professional bodies regulate audit services across the globe, thus making them further qualified as a financial service. In the majority of jurisdiction the audit firms are obligated to enroll with financial regulatory agencies and are expected to adhere to strict requirements that reveal:

• International standards on auditing (ISA)
• Generally accepted auditing standards (GAAS)
• Lines of IFRS or GAAP compliance

This regime makes auditors work in an autonomous, professionally skeptical and technically competent manner which are all fundamental pillars of monetary administration.

Types of Audit in Financial context:

1. Financial Auditing Statutory

It is the most usual type of audit, that is obligatory in case of some entities. It is an independent examination of annual financial reports with a view of complying with the laws and regulations of a specific area and financial reporting standards.

2. Internal Audit

Internal audit is performed by or at the expense of the system to assess the work of internal control, the work of risk management and the financial declaration. They are a strategic financial role in large corporations although it is not always prescribed by law.

3. Forensic Audit

There are instances when financial discrepancies or frauds are anticipated; forensic audits are then carried out. It is a niche financial service frequently employed by litigation (or regulatory compliance).

4. Tax Audit

Such an audit provides a wash in tax filings of a business with the financial records. It is important in the passing of checks to make sure that the tax liabilities are reported as received with the payment.

All these classes reveal how rooted the audit has gotten in the financial service arena.

The financial sector and audit firms.

Largest audit firms (often called the Big Four: Deloitte, PwC, EY, and KPMG) are not only the audit providers but also the giants of financial services. They offer the following services:

• Financial advisory
• Risk assurance
• Tax planning
• Transaction services
• Corporate restructuring

The fact that these companies are also dominant in the financial consulting sphere as well as in auditing proves the fact that the financial industry and audit services are interdependent.

We understand that many companies may need assistance navigating the audit process. For audit arrangements, we HL Khoo Group can do it for you through our trusted network of licensed audit professionals. We coordinate end-to-end audit engagements to ensure full compliance with statutory and financial standards.

Audit's Role in Capital Markets and Investment

Capital markets and investors use audited financial statements to base their decisions upon. Through an audit, the performance measures of a certain company such as:

• Revenue growth
• Net profit margins
• Asset valuation
• Debt ratios
• Health of cash flow

Devoid of independent audits, the financial integrity of listed firms would have been jeopardized thus causing instability in the market hence investment risk would also be high.

Audit vs. Key Differences and Synergies in Other Financial Services: Other Financial Services is hard to characterize. The key differences are not clear at all, and synergies are only possible.

Although audit has a financial character of service, it has a specific purpose as compared to banking or insurance. Auditing is not the same as the services which either help in money transfer or protection. Auditing is a control and check measure. It however, operates alongside other services in order to maintain soundness of financial operations.

For example:

• Loans which are obtained in banks are based on the audited financials.
• Before purchasing shares, investors make use of audit opinions.
• Audits are imposed by the government in order to have tax compliance.

Put simply, without the reliability of audit one cannot build any other kind of trust across the board in others of financial services.

Trends in the World: Digitalization of audit as a financial service

There has been a great revolution in the field of audit during the digital age. Nowadays, auditing firms incorporate:

• Anomaly Detection based on Artificial intelligence (AI)
• Immutable transactions trails with blockchain
• Real-time auditing platforms based on clouds
• Predictive financial analytics data

These advancements are bringing audit to step in line with the digital finance arena and it has shown that audit like any other financial service is tech-enabled and is future ready.

FAQ