The Validity and Reliability of Financial Information of the Company - Essay Example

Running Head: Non-Financial Audit Non-Financial Audit s Non-Financial Audit When an organization, system, project, process, or a product is evaluated, it is known as an ‘Audit’. In accounting terms, a company’s management presents its financial statements, and when these statements’ fairness is assessed independently, it is called Audit. Independent, objective, and experienced people or a group of people evaluates as mentioned above, and are known as accountants or auditors. In this regard, a report is issued by the basis of results that comes out from the auditing process of a company by them. The validity and reliability of financial information of the company is ascertained due to the performance of Audits. Additionally, an assessment of that particular business system is also provided during the auditing process. In this regard, generally accepted standards should be adhered by such systems that are governed by specific bodies, which are responsible for the regulation of businesses in their sector. However, the technique of random sampling is used during the auditing process. Therefore, it is not assured by the auditors that their results are perfect and free from errors regarding those specific financial statements. One of the primary objectives of an auditor is to assure external users and third parties that the company’s financial conditions are fairly present in such statements. In this regard, quality control certifications are also provided and issued by various auditors, such as, ISO 9000, etc. As we have tried to understand the definition and purpose of performing the auditing process, it is important to know that Audit has been divided into two different sectors, as per their objectives, processes, and results. These areas are Financial Audits and Non-Financial Audits. The financial audit is an important type of audit. Financial statements are determined through the designing of financial audits that assure the fairness of these statements as per the International Financial Reporting Standards, also known as IFRS. GAAP, that is, Generally Accepted Accounting Principles are also considered by the auditors and accountants during the process and evaluation of financial statements through the financial audit process. In the United States, all publicly registered companies require the financial audits on semi-annual or annual basis. In addition, private companies, public entities, registered charities, and governmental bodies may get the financial audits for proving the fairness of their operations and results. Typically, financial audits are requested by the private companies every year, as audit is required by the lenders and owners, in order to check and confirm the compliance of all the required accounting principles in the company. In order to show the financial status of the organization, a financial audit would be required by charities for attracting potential donors for the better running of the management for various charitable purposes. Generally, statutes are required to audit governments and businesses that are associated and linked with the governments of a country. In this regard, the budgeted money is audited, in order to determine and evaluate the consumption of that amount for the performance of various aims and objectives of the country. For this purpose, outside auditors are not always required for the financial auditing of country, and usually, auditors are appointed or elected by the governments and their bodies in this regard. Until now, we have tried to comprehend and discuss some aspects and objectives of financial audit, which is related most with the financial statements of an organization or a country. In order to understand the auditing process in broader terms, we will now try to understand and analyze another type of audit, that is, Non-Financial Audit. As clear from its name, the non-financial audit is related to the evaluation and assessment of all the factors that are related with a company, except financial statements and their amounts. In this regard, we will take some examples of non-financial audits, and will discuss them, in order to understand the non-financial audits clearly and unmistakably. In 1993, the United Kingdom’s National Health Service introduced an auditing process, which is known as Clinical Audit. When patient care and outcomes are sought, in order to improve it with the help of a quality improvement process, it is known as a Clinical Audit. In this regard, care is reviewed through a system that works against the explicit criteria and the efforts behind the change of the implementation in an organization. Unlike financial audit, the performance is reviewed and audited by the clinical auditors. During the clinical audit, the auditors ensure that the activities and actions that are done in an organization are similar to the criterion that was given to the company. During the clinical audit, a framework is also provided by the auditors, if improvements are needed in that particular organization. There are various ways in performing the clinical auditing process of an organization. Sometimes, auditors choose standards-based audit for their objectives. Defining of standards through a cycle, measurement of current practices with the help of collection of various data, improving and implementing any changes in that particular organization, comes under the umbrella of Standards-based audit. In another type of this audit, individual anonymous cases are discussed by a multi-disciplinary team, in order to reflect different functions and operations of the team for better working in the future. It is known as a Significant Event Audit in terms of primary care setting. This allows the auditors to screen companies having adverse occurrence, and to monitor critical incidents that take place during the process of the company. In other case, clinical care is tried to improve by assessing a clinical team and its quality of care that is provided to its customers. This is the primary difference between the financial and non-financial audit that the later one deals in financial statements and amounts, whereas, the former one performs the assessment of care, quality, management, environment, etc. In this process, peers discuss various individual cases for the determination of best care that was given by the team. This might look similar to the type that is explained above. However, problematic cases are assessed in the former one, whereas, the later one discusses and analyses unusual and interesting cases during their assessment. Unfortunately, pursuing of provided recommendations by these reviews is not done due to non-availability of a systematic method or strategy in our society. One of the methods of clinical audit is that users’ views related to the care’s quality are obtained by different patient surveys and focus groups. However, a feeling of meaningless is often felt in various surveys that are done for their own sake. Even then, extremely productive results can be provided by undertaking of the collection of data. Clinical Governance is followed by the Clinical audit that comes under the umbrella of non-financial audit. During this process, the standard of clinical practice is improved by the application and implementation of systematic methods and strategies in the system. From the above-given diagram, we can see that clinical audit is one of the important key factors and pillars of Clinical Governance. However, accountability of NHS organizations is done through this governance system. In the year 1997, Clinical Governance incorporated Clinical Audit that provided a coherent framework for the assessment purposes of different organizations. A spiral is usually considered in defining the process of Clinical Audit, which is an important type of Non-Financial Audit. Best practices are established with the help of a systematic process, which are divided into different and various stages. A higher level of quality is attained on the completion of each cycle in an organization. In the first stage, different problems and issues are identified by the auditors with the help of different criteria. Some factors influence the selection of topics or issues by the auditors. In this regard, issues are selected in the existence of national or generally accepted standards and guidelines. The problems that are encountered during the practice are also given the consideration by the auditors. Additionally, if the evaluation and assessment of some specific issues may bring improvement and positive outcomes for the public and patients, then those issues are also dealt by the auditors. In the next stage, standards and criteria of performing an audit are defined by the auditor, which are sometimes, also known as Audit Criteria. In these criteria, elements of care and standards of measurement are represented by the auditors. During the third stage, essential and precise data is collected while establishing some details from the outset. In this regard, inclusion of the user group, as well as, the healthcare professionals is considered very important for the auditing purpose. The period is also taken into auditing that was taken for the application and implementation of the criteria. It has been observed by the experts that sometimes, a compromise is made by the auditors during the sizing of samples for the collection of data. Pragmatical issues and validity of the results, in terms of their statistics, comes under the compromise. A computerized information system would be available, but standards suggest that the collection of data should be done manually. In either case, the what, where, and who for the data collection is considered by the auditors. During the third stage of the clinical audit, consideration of ethical issues is also done by the auditors. In this regard, the objective of the audit is considered for the data collection, and no extra information is collected by the auditors. Confidentiality of staff members and patients are respected and privacy is given to them, when needed. The local Research Ethics Committee is set up for the discussion of any potential sensitive topics during the auditing process. In the fourth stage, criteria and standards are taken as the base, and performance is compared with them, in order to get outcomes for that organization. Therefore, some experts also called this process as the analysis stage of the clinical audit. In this stage, a conclusion is given by the auditors that whether the organization met the standards and criteria that were given to them, or else, reasons of not meeting the standards is also identified in this regard. In theory, a potential for improving the care is suggested by the auditors, when the cases are not met 100% within the provided standards. In practice, obtaining of further improvement and development is taken as difficult, when 100% of the results are found to be close with the given standards and criteria. However, in some death or life cases, the topic area influences this decision by the auditors. The fifth stage of the clinical audit is related to the application and implementation of changes that are required in an organization. This stage is started after the publishing and discussing of the auditing results, as mentioned above. In this regard, the auditors and organizers come to an agreement regarding the changes that are recommended by both of the parties. A good practice is planning and using an action plan, in order to record the mentioned recommendations. The person, time, and place are some of the key factors that are included in the action plan. However, when an inappropriate assessment is found after the audit, another action plan is prepared for the refinement and improvement of different auditing tools, which were used during the assessment and evaluation of the organization. In other instances, other departments or individuals are involved and measurement of new outcomes and processes is considered during the action plan. This type of linkage auditing implementation is known as Joint Audit. The Clinical Audit lead and manager should encourage this type of audit, which might result in more profit and effectiveness in the organization. Through the abovementioned stages, the Clinical Auditing process is completed by the Auditors. However, these stages are repeated after an agreed period by both the parties. In this regard, the original audit is compared with the repeated one, only if the conditions and considerations are taken as they were in the previous one. Such as, identification of sample, sizing of samples, methods, standards and criteria, etc. are the same strategies that should be used by the auditors. New changes and implementation should be demonstrated in the re-audit. Improvements that were needed in the past should be represented by the auditors. Additional re-audits will be lead, if further changes and improvements will be suggested in the repeated auditing process. This stage is taken as very critical due to its seriousness regarding the different outcomes of an auditing process, as the implementation and changes are verified in the re-audit process, which were suggested by the auditors for the better profit and working of the organization. Conclusively, from these steps and stages, the Clinical Auditing of an organization is done by the auditors, which is an important part of the Non-Financial Audit. This type of audit allows an organization to understand and evaluate their performance and operations that are done for better care of the people and patients. There are some other types of Non-Financial Audits, which audits the non-financial side of an organization, in order to create a quality environment for better results and profit in that particular organization. Some of the Non-Financial Audits are Computer Security Audit, Configuration Audit, Conformity Assessment Audit, Health & Safety Audit, Environmental Audit, Information Technology Audit, Management System Audit, Quality Audit, Performance Audit, Security Audit, Software Audit, Telecommunication Audit, etc. The Non-Financial Audit deals with every aspect of an organization except the financial department, that is, the financial statements of the organization. However, the Financial and Non-Financial Audits are connected and inter-related with each other, as the financial auditing is done to ensure the fairness and credibility of an organization. In contrast, non-financial auditing is done to evaluate and assess the capability and working of that organization. Therefore, we can say that operations and quality of the working of an organization is assessed and improved with the help of non-financial auditing, which indirectly, also effects the financial statements of the organization. Both the auditing processes are similar in terms of their objectives directly or indirectly, that is, for the evaluation and improvement of an organization. Conclusively, we have tried to understand and discuss various aspects and key factors that are related to the Non-Financial Auditing process that is required and done in different organizations by non-financial auditors. We also tried to define and compare the financial auditing process with the former one, in order to understand the audit in broader terms. We hope that our study will help in providing support to the auditors and organizations in their further studies. References Clare Morrell, Gill Harvey. (1999). The Clinical Audit Book: improving the quality of health care. Elsevier Health Sciences. Clinical Governance Support Team. (2004). A Practical Handbook for Clinical Audit. Charles Albert Mills. (1989). The Quality Audit: A Management Evaluation Tool. McGraw-Hill Professional. Department of Health. (1989). 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