Audit

What it means

An audit is an independent examination of the annual closing by an auditor registered with the Slovak Chamber of Auditors. It ends in an opinion on whether the statements give a true and fair view - not in a certificate that the company is profitable or well run.

The obligation arises when statutory size criteria (assets, net turnover, average headcount) are exceeded in two consecutive periods, and also for securities issuers and other cases named in the Accounting Act.

An audit is not a tax inspection and does not check every document. The auditor works with materiality: looking for errors that could change a reader’s view of the statements, and testing documents by sample. A clean opinion therefore does not mean the books hold no error at all, nor that the tax office will find nothing in an inspection.

How it works in practice

The auditor works from what bookkeeping prepares: the general ledger, the stocktake, balance confirmations from banks and trading partners, contracts, the sub-ledger. The tidier the routine records, the shorter and cheaper the audit.

The audited statements and the annual report are filed in the register of financial statements. Banks, large customers and investors read them there, so an audit also works as outward credibility.

For clients with an audit we plan the year differently. The auditor usually does an interim visit before year end, attends the physical stock count and does the main work after closing. We prepare the list of requested documents, agreed balances and explanations of large movements in advance, so that the report is ready before the statements go for approval.

What to watch out for

An audit cannot be assembled in a week in March. A company that crosses the thresholds knows it during the year and has time to put estimated accruals, provisions and impairment allowances in order. Filing unaudited statements is a breach with its own penalty.

A qualified opinion has consequences outside the company. Loan agreements often carry covenants that require audited statements without qualification, and large customers read the opinion when they rate a supplier. A qualification over uncounted stock or unsupported receivables can turn into a financing problem, even though timely preparation would have removed it.