FAQs

¿What is an annual accounts audit?

An audit is a very thorough examination of an entity’s annual accounts, undertaken by an officially recognised auditor. This examination is carried out through the application of a series of analysis techniques and procedures, and which always respect the technical auditing rules which are compulsory for the auditor. The final auditing product is a report in which auditors express their professional opinion about whether the annual accounts examined express reasonably the true picture of the economic and financial situation of the entity under audit.

¿What does the auditor’s report express?

It expresses a professional opinion. The auditor gives an opinion on the degree of representativeness of the annual accounts, in other words, on whether these accounts are correctly prepared in accordance with accounting principles and, therefore, if reading the annual accounts provides a true picture of the economic and financial situation of the company.

¿What is an audit for?

Briefly, it serves to lend credibility to an entity’s annual accounts and therefore to enable third parties to put their trust in those accounts when taking their decisions.

¿What isn’t an audit for?

It isn’t to find evidence of fraud or irregularities, since this is not the aim of an accounts audit. Neither is it designed to predict the future of the entity nor to cast any doubt on the way in which the entity and its managers run the business.

¿How much does an audit cost?

Audit fees depend on many factors and cannot therefore be calculated unless by a preliminary study of each case. This preliminary study is generally carried out in the context of one or various meetings with the entity to be audited, where the auditor makes an estimate of the number of hours that will be needed to carry out the task. That number of hours constitutes the basis for determining the fees.

¿Why do companies get audited?

Voluntarily or as a legal obligation.

¿Who is obliged to be audited?

An audit may be compulsory for reasons of size, or because of having carried out specific corporate operations. Both cases are subject to the rules of commercial law or the specific legislations of certain legal types of entities (foundations, associations, cooperatives, etc.).

 

Some concrete cases where audits are compulsory are:

 

With regard to obligation as a result of size, trading companies are obliged to be audited when they exceed two of the following limits for two years running:

 

Net business turnover value 5.700.000 Euros
Total Assets 2.850.000 Euros
Number of employees 50

 

In addition, all entities, whatever their legal status, which during that tax year may have received grants to a value greater than 600.000 Euros

 

Also all entities which during that tax year have carried out work, service provision or supplied services to public administration to a value greater than 600.000 Euros, where this amount is more than 50% of their net business turnover.

 

Groups of companies which are obliged to present consolidated annual accounts

¿What work is involved in an audit?

The entity being audited must bear in mind that it will have to devote a certain amount of time to the request for information from the auditors. It will have to provide a great deal of documentation and information, and the time devoted to meetings will also have to be given consideration.

¿Is an audit always the best solution?

Annual accounts auditing is a service which is perfectly defined by law and by the technical rules of auditing. As a consequence, the parties involved cannot change the contents of this service. In professional jargon, it is common to say “an audit is an audit”. The introduction of any desired variation will give rise to a service which cannot be called an accounts audit.

So, then, an audit is not always the right service. It depends on needs and the objective sought.

¿Are there alternative services to an audit which might fulfil more specific purposes?

As always, the needs and the objective being pursued determine the service to be provided. Thus, if there is no need for a very high degree of reliability, then a limited review or the review of only one part of the annual accounts could be contracted. If there is call to verify a specific aspect very exactly, a service with agreed procedures can be used. If the client wants to analyse the possible existence of fraud, then a series of procedures designed for that purpose should be carried out, which will depend largely on the specific circumstances.

 

Furthermore, the purchase or sale of a company will call for a wider service than an audit (we might be talking for instance about a due diligence) and/or a valuation of that company.

 

In other cases, when aspects more closely related to the management of the entity need to be analysed, ad hoc studies will be effected, the extent and nature of which will be determined in a completely customized fashion. As we have seen above, none of these tasks can be called accounts auditing.