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Good Audit Planning Is Halfway to a Successful Audit
Why should you consider an internal audit function?
Financial statements are a structured representation of a group or company’s financial position and performance at a point or period of time. Financial statements are a good starting point to help us know more about the state of a company’s affairs.
Each financial statement has 5 core elements:
Listed companies are subject to strict reporting requirements, and additional information is disclosed. It may include: corporate governance practices; management discussion and analysis; biographies of directors and senior management; board committees; environment, social and governance performance, etc.
Audited financial statements will have an Auditor’s Report, which gives an opinion on whether the financial statement provides a “true and fair” view of the state of company.
We can also make use of financial ratios to test a company’s profitability, stability and efficiency.
Earning before interest and tax (“EBIT”) shows a company’s performance without accounting for tax expenses or capital structure that may impact profit. We can use EBIT to compare two companies in the same industry but with substantially different tax rates. EBIT can also be used to analyze companies that are capital intensive (such as automobile, chemical and oil refinery industry), which have higher debt levels to finance property, plant and equipment. If debt levels are managed properly, the company will thrive despite high levels of interest. EBIT may be more meaningful in these circumstances.
Financial statements provide a wealth of information. However, it only demonstrates what the company has achieved in the past (i.e. in a specific time frame or time period). This may not be indicative of present or future performance. To fully understand a company, we should not only analyze the financial statements, but also read the news, research reports, and publications from other stakeholders, like banks and regulators.
PKF provides a full range of services, which include:
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