FAQs

Financial auditing is the process of examining an organization’s (or individual’s) financial records to determine if they are accurate and in accordance with any applicable rules (including accepted accounting standards), regulations, and laws.   External auditors come in from outside the organization to examine accounting and financial records and provide an independent opinion on these records. The Law requires that public and private companies have their financial statements externally audited.   Internal auditors work for the organization as internal employees to examine records and help improve internal processes such as operations, internal controls, risk management, and governance. B.K.B & Associates provide audit and assurance services consistent with prevailing world auditing standards.

Audit is an important term used in accounting that describes the examination and verification of a company’s financial records. It is to ensure that transactions are represented fairly and accurately. Further, audits are performed to ensure that financial statements are prepared in accordance with the relevant accounting standards. The three primary financial statements are:

1. Income statement
2. Statement of Financial Position
3. Statement of Cash Flows

Financial statements are prepared internally following the relevant accounting standards and are developed to provide useful information to the following users/ stakeholders:

1. Shareholders 
2. Creditors
3. Government entities
4. Customers
5. Suppliers 
6. Partners

Financial statements capture the operating, investing and financing activities of a company through various transactions that are recorded. Because the financial statements are prepared internally, there is a high chance of fraudulent behavior by the preparers of the statements. Without proper regulations and standards in place, preparers can easily misrepresent their financial positioning to make the company appear more profitable or successful than they actually are. Auditing is crucial to ensure that companies represent their financial positioning fairly and accurately, and in accordance with accounting standards.

In accounting, accuracy is crucial. Incorrect or improperly reported numbers can lead to all kinds of problems, from misguided strategic planning to cash flow issues, which could even leave an entity unable to pay employees. But how can one be positive your numbers are accurate?

The answer is an audit. A thorough examination of everything from specific transaction testing to financial statement report presentation, an audit performed by a CPA can be the assurance your company needs to proceed with confidence. Here’s what you can gain from audited financials.

• Improved Management Decisions

Managers and executives rely heavily on current financials statements, budgets, and forecasts to make business decisions, like hiring new team members and launching new lines of business. Errors at this stage can be critical, so it’s important for management to work with the most reliable information possible. Audited financial statements can provide an extra layer of confidence, allowing management to make specific changes that can promote positive corporate growth and development with the knowledge that the key numbers they are using are correct.

• Investor Confidence

Many companies rely heavily on investors to fund their businesses, from traditional stockholders to angel investors. However, most investors won’t move forward without audited financial statements. Providing audited results to investors can increase your odds of receiving crucial investments, helping your business to avoid cash flow issues, and better plan for the future. Audited financials can also result in better investment terms, possibly even larger consideration in exchange for reduced royalties or equity.

• Better Lending Terms

For some businesses, especially those seeking acquisitions or planning large capital expenses, third-party loans are essential. Banks and other lenders generally limit activity to only proven companies with solid business models, restricting access to those without trustworthy reporting. An audit can provide the verifiable records banks and other lenders like to see, increasing your odds of receiving a loan – and better terms and interest rates.

• Employee Confidence

Employee attitudes can play a sizable role in company morale and, consequently, quality of work. When employees are left in the dark or offered inaccurate information, they are far less likely to trust you, be loyal to you, or put in extra effort on your behalf. Providing access to audited financial statements can build confidence in your legitimacy as an employer. This demonstrates your commitment to your team members, and could ultimately boost job satisfaction and performance in a way that can yield tangible benefits for your business.

• Customer Loyalty

Customers often spend significant time making purchase decisions, researching online, reading testimonials, and reviewing background information on company operations. Influential information can range from financial records to charitable donations; though ultimately every piece of data you make available can influence potential customers. When you release audited financial records, consumers are far more likely to have confidence in your capabilities, building loyalty and boosting customer retention. From management decisions to employee trust, there’s a lot to be gained from seeking an audit of your financial statements. If you want to be sure there are no issues with your books, B.K.B & Aassociates is happy to help. We can offer everything you need to keep your business moving forward.

• Internal audits

Internal audits are performed by internal employees of a company or organization. The audits are not distributed outside the company. Instead, they are prepared for the use of management and other internal stakeholders. Internal audits are used to improve decision-making within a company by providing managers with actionable items to improve internal controls. They also ensure compliance with laws and regulations and maintains timely, fair, and accurate financial reporting. Management teams can also utilize internal audits to identify flaws or inefficiencies within the company before allowing financial statements to be reviewed by external auditors.

• External audits

Performed by external organizations and parties, external audits provide an unbiased opinion that internal auditors might not be able to give. External financial audits are utilized to determine whether there are any material misstatements or errors in a company’s financial statements. When an auditor provides an unqualified opinion or clean opinion, it reflects that the auditor provides confidence that the financial statements are represented with both accuracy and completeness. External audits are important for allowing various stakeholders to confidently make decisions surrounding the company being audited. The key difference between an external auditor and an internal auditor is that an external auditor is independent. It means that they represent a more honest opinion rather than an internal auditor who may be biased. B.K.B & Associates is a well-established accounting firm that typically completes external audits for various corporations.

• Government audits

Government audits are performed by entities that relate to ensuring that financial statements have been prepared accurately in order not to misrepresent the amount of taxable income of a company. Within Kenya, the Kenya Revenue Authority (KRA) performs audits that verify the accuracy of a taxpayer’s tax returns and transactions. Audit selections are made to ensure that companies are not misrepresenting their taxable income. Misstating taxable income, whether intentional or not, is considered tax fraud. The KRA and uses statistical formulas and machine learning to find taxpayers that are at high risk of committing tax fraud. Performing a government audit may result in a conclusion that there is: • No change in the tax return • A change that is accepted by the taxpayer • A change that is not accepted by the taxpayer If a taxpayer ends up not accepting a change, the issue will go through a legal process of mediation or appeal.

Bookkeeping is the recording, on a day-to-day basis, of the financial transactions and information pertaining to a business.

It ensures that records of the individual financial transactions are correct, up-to-date and comprehensive. Accuracy is therefore vital to the process. Bookkeeping provides the information from which accounts are prepared.

It’s a distinct process, that occurs within the broader scope of accounting. Each transaction, whether it pertains to a purchase or a sale, must be recorded. There are usually set structures in place for bookkeeping that are called ‘quality controls’, which help ensure timely and accurate records.

While it may seem obvious, detailed, thorough bookkeeping is crucial for businesses of all sizes. Seemingly straightforward, bookkeeping quickly becomes more complex with the introduction of tax, assets, loans, and investments. Tracking the financial activities of a business is the truest purpose of bookkeeping, meaning it allows you to keep an up-to-date record of the current incoming and outgoing amounts, amounts owed by customers and by the business, and more.

Accounting is the process of recording financial transactions pertaining to a business.

The accounting process includes summarizing, analysing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.

Accounting plays a key role in running a business because:

• It helps you track income and expenditures
• Ensure statutory compliance
• Provide investors, management, and government with quantitative financial information which can be used in making business decisions.