audit

What is an audit?

Audit is a procedure of examination and evaluation of financial statements and consolidated financial statements of the audit obligational party and methods applied upon making the financial statements, based on which a professional and independent opinion on reality and objectivity of the financial position, operating result and cash flows is given.

Audit of financial statements includes auditing of the Balance Sheet, the Income Statement, the Cash Flow Statement, the Statement of Position and Changes of Capital and all other supplemental statements and data necessary for forming an audit opinion.

Who is obliged to have an audit?

According to the Law on Audit, the following are obliged:

all joint stock companies
limited partnerships and limited liability companies whose annual income in the pre-audit year exceeds 30.000.000,00 kunas,
banks,
insurance companies,
investment funds,
pension funds,
retirement investment companies and
other companies due to special regulations,
related companies regardless of size, if the parent company is obliged to have an audit,
consolidated financial statements,
others are obliged according to own set of rules, articles of incorporation or company act

Who can perform an audit?

Authorized (chartered) auditor who obtained the Chamber certificate and is recorded in the Authorized Auditor's Registry directed by the Chamber. Authorized auditors can perform audit as independent entrepreneurs, affiliated through joint auditors' office or auditing firm, all under condition that they own a permit for performing auditing activity which is confirmed by registration in the relevant Registries directed by the Chamber.

Independent auditor and audit firm with only one employed authorized auditor cannot perform audit of the financial statements to the following:

joint-stock companies and limited liability companies whose annual income exceeds 40.000.000,00 kunas,
companies whose securities quote on stock exchange on the official market or market of public joint-stock companies,
banks, investment funds, pension funds and companies, insurance companies, broker companies, respectively other legal entities which perform financial services and for which the law regulating these services prescribes advanced audit coverage of the consolidated financial statements.

Who benefits from the Audit Report?

Except for fulfillment of legal requirements of audit, the Audit Report also utilizes to:

company owners
potential investors
loan providers (banks)
business partners (customers, suppliers)
others (employees, general public)

How high are audit fees?

The fee depends on entity's type of activity, realized incomes, total assets, number of employees and other circumstances (whether the entity is obliged to perform a consolidation, securities on stock exchange market).

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Auditing of the financial statements

We perform the audit procedures according to the generally accepted International Auditing Standards and International Auditing Guidelines, Croatian Regulations published in the Official Gazette of the Republic of Croatia (Narodne Novine).

The audit of financial statements is performed in two phases when applicable:

a) INTERIM AUDIT - is performed during the current year and consists of:

introducing with business operations and making critical analysis of the operations,
monitoring, examination and valuation of the function of internal accounting procedures,
presence and control over assets-taking.

b) FINAL AUDIT - is performed prior to year end and after finalizing the annual account, or simultaneously with performing the annual account and making the annual reports. It relies on the results of Interim Audit.

The audit of financial statements includes the following procedures:

Introduction with the business operations (conversation with the Management, a tour through the departments and other);
Understanding business activities and system of recording the financial data and preparation of financial statements;
Researching whether the financial data is completely recorded, promptly and with due authorization;
Whether the Income Statement as well as the balance Sheet are in compliance with the General Ledger and analytic records;
Research of the accounting policies and discussion whether they are equal to the accounting standards, implemented adequately and consistently, and in case they are not to consider whether the publication of such data afflicted changes in the accounting policies;
Obtaining Management's commentary and/or explanation for unusual fluctuations or inconsistency in the financial statements, as well as answering questions which are constituent part of the methodology guidelines for data authentication of the Balance Sheet and Income Statement;
Result comparison with the results from the previous periods and expected result from the future periods. Discuss relevant changes and changes occurred after year end with the Management;
Examine whether recognizing significant incomes and expenditures accompanied correspondent periods;
Analyze extraordinary and unusual entries;
Taking into consideration relationship amongst related entries (e.g. incomes and assets) and other similar relationships, as well as other information which are available to the auditor;
Performing a check-up of materially significant entries of financial positions in financial statements, with a focus on the entries which are in auditing program declared as high risk: buyer receivables, value adjustment of receivables and payables on a specific date, inventories, investments, ownership and depreciation, deferrals, intangible assets and other assets, loan payables, trade payables, accruals and potential liabilities, income tax and other taxes, subsequent events, legal disputes, subscribed capital etc;
Final Audit Report of the financial statement as well as Management Letter if applicable.

Collected information on accounting system provides an evaluation of the internal control system as a basis for completing financial statements. If necessary, the authorized auditor will submit the Report on noted irregularities and weaknesses in the Accounting system to the Management and propose the way of solution and give suggestions for their elimination.

What are the obligations of the company that is being audited?

The obligation of the client is to deliver to the auditor all required statements, documents and other information essential for performing an audit, specifically the following:

Deliver annual inventory -taking plan in order to ensure our presence;
Fill out all auxiliary records necessary for auditing;
Submit required accounting and other documentation;
Provide explanations and answer questions relating to audit procedure;
Provide an inside coordinator for collaboration with the auditor;
Deliver all information required for auditing in a timely manner.

What are the types of Audit Opinions on financial statements?

An Audit Opinion can be unqualified, qualified, adverse opinion or disclaimer. During eventual discrepancy of the financial statements with accounting standards, the same is reported in accordance with the Auditing Standards only in case of material significance for expressing an Audit Opinion on reality and objectivity of the shown assets and liabilities position as well as operating profit. The auditor has a professional and legal responsibility to report if the financial statements of the client do not ensure true and objective data or if in some materially significant extent are not complied with accounting standards, legal regulations or specific circumstances.

Is there a business ethics for auditors?

During the audit the auditor encounters numerous client's confidential information and data therefore it is important to respect rules prescribed by Code of auditor's professional ethics, respectively all findings and information gathered in the auditing procedure are kept as a professional secret.