Engaging an external auditor is an investment that will serve your business well in the long run.
As a prudent entrepreneur, you have most likely done an internal audit of your organization. However, you may still need the help of an independent auditor who will review your financial reports without being swayed by personal relationships.
Besides, the Hong Kong Companies Ordinance requires all entities incorporated in HK to subject their financial statements to an annual audit by a Hong Kong practicing Certified Public Accountant (CPA).
Yet, if you want to hire a reliable auditor for your firm, take into account that there are certain key things to remember. These will assist you in determining whether the external auditors are the best fit for your company’s needs.
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What is an external audit?
Before we dig around the important things to consider when hiring external auditors, it’s important to know what external audit actually is.
An external audit is an official examination of financial records performed by a completely independent body.
The primary purpose of external auditing is for the auditor to develop an opinion as to whether the financial statements are presented fairly in accordance with the relevant financial reporting framework.
On the one hand, the management is responsible for preparing and presenting the financial statements in accordance with the generally accepted accounting principles.
On the other hand, the external auditors are responsible for determining whether the financial records are free from material errors and fraud and depict a true representation of the business.
After performing the examination, the external auditor prepares a detailed and unbiased report for the intended user, such as the company management, investors, and Inland Revenue Department.
What to Consider When Hiring an Auditor in Hong Kong
The reputation of the external audits firm
Reputation is important on its own.
An auditing firm with a good reputation is more likely to provide value for its clients.
Some of the factors to consider about an auditing firm’s reputation includes client portfolio and reviews, online presence, and how the client responds to both positive and negative reviews.
Getting insight into how previous and existing audit clients feel towards the team of external auditors says a lot about the quality of their services.
For these reasons, it is imperative to do your research before making your hiring decision.
Tips in assessing the reputation of an audit firm:
- read the reviews and clients’ testimonials so you can get an insight into how clients perceive your prospective external auditor
- determine how the firm respond to negative reviews, this speaks well of their communication and customer service
- consistency of online presence, from the firm’s website, social media accounts, and review sites.
A reputable firm of independent auditors strives to understand their client’s needs and experiences.
They work to ensure that their client benefits from their service, while they uphold their sworn statement to promote the best interest of the public.
Experience in auditing financial statements of businesses in your industry
The skills needed in auditing are acquired through education and experience.
External auditors who have worked in your industry before are more likely to perform an efficient audit. Their experience will also allow them to give value-added services and actionable steps for your business.
For example, an experienced external auditor who is familiar with auditing financial statements in your industry is in a better position to understand your internal control system.
A part of the auditor’s responsibilities in forming an opinion and reporting on financial statements includes obtaining an understanding of internal control relevant to the audit.
Without a good understanding of your internal control, an external auditor may fail to identify risks. This may lead to yet another failure to design and implement an appropriate audit process and response.
As a consequence, your external auditor may not obtain sufficient evidence to support his audit opinion.
Use of technology
Auditors that fail to use technology and data analytics risk missing out on key insights about a business organization.
External auditors who use new technological tools in auditing can gather and evaluate a large volume of information associated with the company’s financial records.
This will allow them to test the entirety of a company’s financial operations rather than just a sample of transactions in the general ledger.
With technology, they can swiftly digest massive financial information with accuracy, allowing them to review their findings and interpret the data.
As a result, the external auditors can focus on the complex and higher-risk areas that demand more auditor judgment and expertise.
Quality assurance processes
Quality assurance processes are a crucial part of the audit planning so external auditors can present a true and fair view of the business in their audit report.
The external auditor has the corporate social responsibility to communicate how they ensure the quality of their professional services.
For instance, are there processes to ensure adherence to relevant legislation such as the recent promulgations under the new Companies Ordinance?
Are there regular peer review systems to promote the quality of external audits provided by the auditors?
Does personnel and audit partners have access to technical and professional development training?
Internal Independence
Your internal auditor is doing an amazing job, and that’s great!
Still, this should not preclude you from hiring an independent auditor to ensure an objective audit and analysis of your business finances.
Furthermore, HK’s Companies Ordinance requires that an auditing firm or an auditor be independent. The goal is for the auditor to provide an unbiased perspective of financial statements under audit.
Scope and fees charged by the external auditors
Your business is operating in an unpredictable time and environment.
Every dollar matters.
Your role as a business owner is to examine, benchmark, and analyze audit fees as it relates to the scope of the audit works. This is to ensure that you will get the most out of the audit fees you are about to pay for.
Your need for audit financial statements
If you look online for the best audit firm in Hong Kong, you can see many accounting firms that provide a variety of services. This means you can engage the services of a single firm for a variety of bookkeeping cfo services.
It helps to determine your needs and match them with the service offered by the auditing firm. Only then should you consider using the auditing firm’s services.
Communication compliance
Communication that works is one of an auditor’s foundational skills.
A strong-two-way communication is important, as external auditors have to communicate with management and internal auditors.
A position paper published by the Global Institute of Internal Auditors, states that internal auditors and external auditors “should ensure appropriate and regular communication and sharing of information”.
Why should businesses hire an auditor external?
Benefits of external audit:
- provide credibility of the financial statements and the business as a whole
- Surety of compliance with the legal and regulatory framework
- helps the management identify weaknesses in its accounting system and improve their finances
- knowledge and expertise of the accountant can support internal auditors to improve internal control
- corporations can benefit as audited financial statements provide transparency to employees, shareholders, and other stakeholders
- help you save from regulator fees such as tax payments
How can an external auditor help in your business operations?
Getting a reliable auditor can help you avoid disastrous situations, such as issues that may arise from fraud, misuse of resources, and non-compliance with government requirements.
You can expect independent auditors to use their knowledge to uncover problems lurking beneath the surface of your day-to-day accounting processes.
Hiring an external auditor in Hong Kong can assist you to avoid situations where your accounting processes are not in compliance with the promulgations of HK’s Inland Accounting Revenue.
Moreover, external auditors can find and alert an entity of possible risk as they inspect the accuracy of accounting records and reliability of their accounting processes.
Overall, external auditors can improve your different business processes that will eventually result in improved profit.
Wrap Up
Auditing is an important element of business operations, especially among incorporated firms in Hong Kong.
Hiring an auditor helps to ensure that you operate and comply with the legal limitations as provided for by the Companies Ordinance.
The auditing process can be challenging, and ReachTop KSHK ensures to perform precise and thorough audits using the most up-to-date financial software solutions.
If you are considering hiring an independent auditor, give us a call today.