Role of Auditors in SME Finance

Role of Auditors in SME Finance

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WHO IS AN AUDITOR?

Auditing is the analysis of the financial accounts/records and procedures of an organization by a qualified accountant as an auditor.

This is essential in order to gain a fair perspective of a company’s working from the company’s financial statements. Audited statements form the basis by which investors, creditors, bankers, and business partners assess the credibility of the business for investment, creditworthiness, and business association.

The purpose of conducting financial audits is to express an opinion of the auditor on the financial statements based on their audit.

In determining the financial health of an organization as to how efficient and effective it is, the management may require the auditors to take up separate assignment to report specifically on such matters.

Likewise, separate assignment may be taken up by auditors with separate agreed upon procedures (AUP) to conduct audit of non-financial areas.

 

Loans and advances to promoters / owners

SME entrepreneurs can depict a bolstered picture of their balance sheet by disbursing loans and advances to themselves.

In this way, there is no affect on the reserves and surplus of the company. Therefore, the balance sheet of the company looks strong irrespective of the fact that the money has actually been paid out to the promoters.

It is also pertinent for the auditor to analyze whether the owners have pledged their shares in the company to other banks / financial institutions against a personal debt / loan.

The annual report of the company should make an adequate disclosure of the afore-stated factors. The auditor has to check and comments as to whether adequate disclosure has been made or not.

Good Balance Sheet – Good Balance Sheet

Bad Balance Sheet- Bad Balance Sheet

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