Audit: here is everyhting you need to learn and discover about it

What is an audit?

An audit is a form of inspection of the company’s finances. It is usually a mandatory process to independently assess the organization’s performance, cash flow, inventories, and intermediate reports. Thus, an audit generally refers to a financial statements audit, ensuring that taxes and investments went through as intended. 

An audit can also be a prophylactic measure to scrutinize company strengths and weaknesses. Such research gives all the data necessary to ensure and accelerate the company’s growth.

What is the examination focus during an audit?

There are different types of auditing, and the points of interest vary. Depending on what auditor checks, the procedure can be:

  • Financial audit. The examination focus is the company’s financial statements: balance sheets, profits, and losses statements, cash flow statements, changes of equity, etc. A financial audit is one of our services, and you might want to know how we use modern technologies to make it more efficient.
  • Performance audit. The examination focus is whether the company uses its resources efficiently, economically, and productively.
  • State audit. The focus is to supervise over allocation of state finances and other assets. Such auditing checks if the state budget is distributed legally and efficiently.
  • Management audit. The examination is focused on the company management — to find out how to improve it.
  • Information systems audit. The examination focus is on the current and potential systemic risks.
  • Audit of regulated activities. The examination focus is the regulated activities in energy, drinking water supply, and sewage treatment companies. This inquiry helps with data on whether the regulatory accounting systems meet the requirements and whether the data presented in the reports corresponds to the accounting records.

When is there a need for an it?

As we already mentioned, auditing can be both mandatory and voluntary. The latter is a sort of research-based consulting procedure. The need for it might arise when you face unobvious blockers, preventing your company from stable growth. Furthermore, the mandatory audit usually refers to financial statements. This professional third-party outlook helps to improve the credibility of the financial statements. And this credibility matters for every party involved — from your customers to tax payments. 

More on the mandatory audit

Whether an audit in Lithuania is mandatory or not is determined by the Law on Financial Reporting. The obligation to conduct it also depends on the company’s legal form, size, activities, and other characteristics. 

The general rule for Lithuanian closed joint-stock companies (UAB) is that the assessment of financial statements must be carried out in case at least two of the three following factors are exceeded on the last day of the financial year (The balance sheet day):

  • The value of the balance sheet assets is more than 1.8 million EUR;
  • Annual sales revenue exceeds 3.5 million EUR. One should calculate income after subtracting the discounts granted; 
  • During the financial year, the company had an average of more than 50 employees. To estimate this, one should use the rules for calculating the average annual number of employees explained in the list approved by the Minister of finance of the Republic of Lithuania.

These indicators are also relevant for cooperative companies and business partnerships.

Several cases also require mandatory audit no matter the size of the company: 

  • State and municipal companies and closed joint-stock companies with state or municipality as their primary stakeholders;
  • Public interest companies;
  • Joint stock companies;
  • Closed joint-stock companies, whose goods or services prices are regulated by the law. 

Sometimes companies or their shareholders might decide to conduct an audit, even if the mentioned requirements are not present. For instance, if shareholders stay out of the company management, they may want to use an enquiry to ensure the reports provided by the managers reflect an accurate and fair view of the company’s financial condition, performance, and cash flows. The other instance of non-mandatory audit is the one performed when acquiring a company (financial due diligence) or selling company shares. This way, shareholders gain a better understanding of shares value.

Audit Law

Besides professional standards and practical instructions, audit in Lithuania is regulated by the corresponding law. Lithuanian auditors comply with the International Federation of Accountants (IFAC) standards. The Code of Ethics and the International Quality Control Standard (IQC) is another essential rulebook.

Assurance companies

An audit can be conducted only by specialized assurance companies. Such companies possess corresponding certificates and are included in the list of audit companies. If both conditions are met, a firm can perform it’s major and other related services.

You can fully trust such companies, as their activity is not only strictly regulated, but closely supervised by the Audit, Accounting, Asset Valuation, and Insolvency Management Service. The said institution is managed by the Ministry of Finance of the Republic of Lithuania. Its specialists monitor the assurance companies’ internal control systems, structures, policies, procedures, and methodology to make sure everything runs smoothly, effectively, and unquestioningly legally. The assurancecompanies assuring non-public interest companies are supervised by the Lithuanian Chamber of Auditors.

If you are interested in the time-proven quality audit, you are in the right place: we have been conducting it for over two decades. So contact us!