Understanding Financial Audit: Role, Regulations, and Objectives

Understanding Financial Audit: Role and Regulations

The audit function is primarily regulated by Law 19/1988 of July 22 on the Audit of Accounts and its corresponding audit regulation, which is updated almost annually. These rules govern the external, financial, or economic-financial audit, carried out by independent professionals.

An audit involves the verification and review of financial statements (whether economic, financial, or economic-financial). This verification must be performed by individuals who, among other qualifications, are graduates in relevant fields with extensive accounting knowledge.

Auditors are ultimately independent professionals; they are not public officials and have no affiliation with the company being audited. In conducting their work, they adhere to generally accepted auditing standards and procedures, in accordance with established accounting principles. Their primary objective is to verify whether financial statements reasonably reflect the economic and financial situation of an economic unit.

Distinguishing Economic and Technical Units

At this point, it's important to differentiate between an economic unit and a technical unit:

• Economic Unit: Encompasses the entire operational cycle, including production, marketing, and administration.
• Technical Unit: Is industrial in nature, representing a center where products are manufactured, distinct from the company's administrative office. An example is a bank branch.

Key Elements of an Audit

In the audit function, two primary elements are involved:

• The Auditor(s): Independent professionals whose work is strictly regulated.
• The Business Organization: The enterprise or economic entity subject to the audit.

The objective of the audit is the analysis and verification of statements generated based on a General Accounting Plan (PGC) and generally accepted accounting standards. The auditor cannot limit their activities to merely verifying the above; they must also confirm whether any information is being omitted.

The auditor expresses their opinion through a final report, which forms part of the Annual Accounts and Management Report. This report provides a crucial view on the financial health of the entity.

External vs. Internal Audit

In addition to external audits, there is also internal audit, where the auditor, while independent in judgment, is an employee of the company (hence the term 'internal'). The objectives of external audit do not necessarily coincide with those of internal audit.

Objectives of Internal Audit

(Content for this section is not provided in the original document.)