Straightening Financial Inconsistencies Through External Audit

Project Name: External Audit for Clients
Client: Various clients in different industries
Project Commencement Date: July 2015
Project Completion Date: On-going
Project url: Project URL

External audit service is probably the most common of all financial services – known to most business people in Nigeria.


External audit is a statutory requirement by the Companies and Allied Matters Act of Nigeria for every incorporated business in Nigeria. It entails the reviews of the internal controls (as they impact the financial statements) and financial records of the business in order to express an independent opinion that they are free from material misstatement, comply with the relevant standards and give a true and fair view of the financial position of the business and of its financial performance and cash flows for the year.


Audited financial statements help the business owner, among other benefits, to:

  1. Have proper books of accounts/ financial statements, to make better business decisions and run the business better
  2. Obtain funding from borrowers or investors
  3. Satisfy all internal and external stakeholders to the business, including the owner/ founder.
  4. Feel good about his or her business



We have rendered external audit services to many clients in different industries, namely: Trading – wholesale/ retail / manufacturing companies, oil & gas servicing, financial institutions, service companies, printing, media etc.


Challenges encountered have always included:

  1. Lack of complete documentations with which to work
  2. Accounting staff who may not be very competent in the field of accounting
  3. Inconsistent and muddled up records
  4. Lack of standard accounting policy/ procedure documents
  5. Non or partially working accounting/ ERP software – half automated processes, half manual processes
  6. Non automated processes or use of manual processes which are most prone to errors, inconsistencies and fraud
  7. Frequent change of accounting software
  8. Frequent change of accounting/ finance function staff and even company management, making it impossible for continuity and consistency of record keeping.
  9. Sometimes, absolute lack of source documents which which to even work from scratch.
  10. Incoherent and un-interpretable bank statement transaction records.
  11. Non existing or grossly incomplete tax files/ records.
  12. Financial arrangements and other inter-company transactions with related parties which are neither properly valued, properly accounted for nor properly documented.


Our strategy has always been to perform our audit work in line with the provisions/ requirements of the relevant professional bodies and standards – the Companies and Allied Matters Act, the Financial Reporting Council (FRC) of Nigeria and the FRC Act of 2011, the International Auditing and Assurance Standards Board (IAASB) and the International Standards on Auditing, and the International Financial Reporting Standards (IFRS).


Our standard audit approaches include:


Accounting policy – Where standard accounting policy/ procedure manuals are non-existent, we share available accounting policy choices with management and guide them through the process of choosing appropriately for the business. Also walk through the accounting and internal control processes with the officers in charge; offer to prepare accounting and tax policy/procedure manuals for the businesses after the audit work is done.


Incomplete source documents– make professionally reasonable assumptions, use analogies and analytical reviews, apply innovative but professional approaches to benchmarking and measuring transactions with comparable indices and transactions. In all of this, generally perform our work without making the exercise too tedious for all involved.


Bank statements – Obtain all the bank statements for the financial year(s) covered by the audit, collate all the bank statements, sit with company’s representatives to analyze significant transactions and verify accounting treatments; make reasonable assumptions/ second party reconfirmations where interpretation proves difficult. Determine cash flows, review cash flow projections and records, reconcile cash/bank balances at year end. Treat accordingly.


Circularisation – perform second party circularization and confirmation of the applicable assets and liabilities.


Fixed assets – Go around the Company’s premises to sight all the fixed assets, sight receipts where available, analyze and re-verify against schedule of all fixed assets, verify treatment of disposals and write-offs, test depreciation, componentize, where applicable.


Revenue – Sight, test and analyze invoices – manual or automated, tabulate all sales figures, measure and test recognized revenue in accordance with the IFRS, review underlying contracts and categorize revenue as appropriate, reconcile periodic sales figures with what was paid into the bank. Recognize write-offs and bad debts. Analyze and quantify trade receivable for the year end. Treat accordingly.


Inventory– collect all purchase receipts for goods and raw materials, both locally and imported, collect all schedules and documents related to stocks prepared or kept by the Company, quantify prime cost, raw materials/ finished and semi-finished goods. Check stock movement from warehouse, between stores and returns or write-offs for the year. Reconcile stock with goods sold and monies paid from / into the bank accounts. Reconcile and determine closing stock at the last days of the year (where we were not involved in the stock count on the last day), test, analyze and quantify trade payable at year end, treat all accordingly.


Investments– take details of all investments by the business and treat accordingly.


Loans – Obtain details of all the loans, draw-downs, floating or fixed interest calculations, replenishments, repayments of principal and interest charges. Prepare loan valuations, treat accordingly in the books.


Financial instruments – Identify all the available financial instruments, hedges and derivatives; recognize/ de-recognize as appropriate; measure and treat in line with the IFRS.


Equity– obtain all the company’s incorporation documents, shareholder agreements, partner agreements, and any agreements/ documents reflecting subsequent changes to ownership. Treat accordingly.


Expenses– Review cheque stubs used during the year, bank transfer instructions, payment vouchers etc. reconcile all expenses, test, analyze and quantify accounts payabls at year end and treat accordingly.


Inter-company transactions – draw the information required from the companies’ transfer pricing documentations. Where this is non-existent, apply similar methods prescribed by the Transfer Pricing Regulations (makes the audit work more expensive though) in determining the flow / ramifications of transactions and appropriate valuations for them.


Tax – obtain and review the tax files of the company and any documents/ letters, payments etc. relating to tax. Review companies’ income tax, tertiary education tax, NITD Levy (as applicable), NDDC Levy (as applicable) and deferred tax for the year. Review PAYE tax (pensions and other social security levies) for all the employees for all the months/ year(s) covered by the audit. Review value added tax for all the months covered by the audit, review withholding tax for all the months covered by the audit, check withholding tax deducted by customers, tabulate, make provisions, reconcile payments/ shortfall and treat all accordingly in the books.


Make all necessary audit adjustments, provisions/ impairments in line with the provisions of the Standards, ensure that the financial statements are prepared in accordance with the applicable standards, reconcile statements of financial position, statement of profit or loss, statement of cash flows, statement of changes in equity, notes to the accounts. Issue audit report, issue accounts, sign and stamp as appropriate.


I never really understood this whole ‘audit’ thing until Vi-M came in. They have made things clearer, easier, much more organised, and have been in-charge of our external audit for 3 years straight.

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