fbpx

Financial Statements Audit and Internal Control Review: Scope and Differences

Financial Statements Audit and Internal Control Review: Scope and Differences

In the State of Kuwait, public companies and licensed persons are required, on annual basis according to their respective financial year, to submit:

  1. Financial statements audited by a licensed independent auditor including their opinion report; and
  2. Internal Control Review report by a licensed independent auditor including their opinion report.

It is worth mentioning that the each report has a different purpose but they are supplementary to each other.

In the auditor’s report on the audit of financial statements, the auditor provides reasonable assurance about the integrity of the Company’s financial information on one hand, and its compliance with the International Financial Reporting Standards (IFRS) on the other hand, as well as compliance with the provisions of Companies Law and Law No. 7 of 2010 concerning the Establishment of Capital Markets Authority and Regulation of Securities Business. In their report, the auditor indicates that their scope of work doesn’t cover the review of internal controls and thus, they don’t express opinion about the same. It should be noted that this framework is defined in accordance with the international standards on auditing (ISAs) issued by the International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB).

However, in the auditor’s report on the internal control review, the auditor provides reasonable assurance about the existence of documented internal controls for all units of the organizational structure ensuring clear workflow of processes, policies and procedures supported by IT systems, as required by business areas such as the accounting software deployed in the finance function and MS CRM containing the customers’ databases and organizing communications with them. The overall purpose is to ensure that the organization will achieve its objectives related to operations, reporting and compliance.

The philosophy of internal control review involves the concept that the internal control is not limited to financial and accounting activities only as it covers all aspects of the entity and combines different levels of employees, executive management and the board of directors.

In a nutshell, the auditor’s report on the audit of financial statements focuses on sound presentation of the Company’s financial statements only while the auditor’s report on the internal control review focuses on availability of internal controls for all organizational structure units, which help ensure reliability of reporting issued to the board of directors and hence, the shareholders. Therefore, both reports are supplementary to each other from a regulatory perspective.

The following table presents a comparison between the auditor’s reports on the financial statements and the internal control review.

S.
Process/ Activity
Authorized body regarding financial statements audit
Authorized body regarding ICR
Governing legislation and standards
1 Solicitation of proposals from auditors Board of Directors’ Audit Committee  Board of Directors’ Audit Committee Company’s internal regulations
2 Solicitation of proposals from auditors Shareholders’ general meeting  Shareholders’ general meeting Company’s internal regulations and CMA Executive Regulations
3 Solicitation of proposals from auditors Shareholders’ general meeting  Shareholders’ general meeting Companies Law and CMA Executive Regulations
4 Solicitation of proposals from auditors The entity’s executive management  The entity’s executive management IFRSs for financial statements and COSO Standards for ICR
5 Solicitation of proposals from auditors  – International Standards on Auditing
6 Solicitation of proposals from auditors The entity’s financial year  The entity’s financial year Companies Law and CMA Executive Regulations
7 Solicitation of proposals from auditors 4 years  4 years CMA Executive Regulations

 

It is noteworthy that the auditor is appointed to audit the financial statements before the start of the relevant financial year.

However, the auditor’s appointment with respect to the internal control review occurs shortly before the deadline of report submission to the regulatory authorities. This creates pressures on the auditor during the implementation of the engagement and may have impact on the quality of audit deliverables. Therefore, companies should consider this important point when engaging an auditor to perform the ICR services.

For more information about the financial statements audit and internal control review (ICR), please visit our website:

You can print or share the article with others through the following communication channels:
Share on linkedin
LinkedIn
Share on facebook
Facebook
Share on whatsapp
WhatsApp
Share on twitter
Twitter
Share on email
Email
icon-angle icon-bars icon-times Scroll to Top
error: Alert: Content is protected !!