Statutory audit
The role of auditing is a central part of assessing the reliability of financial reporting for entities. An auditor has many different tasks, which are based on the Auditing Act, as well as International Standards on Auditing (ISA).
The objective of the audit is defined by ISA standards. The auditor’s objective when performing an audit is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement due to fraud or error. This enables the auditor to provide an opinion as to whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. Based on their observations, the auditor gives a report on the financial statements and communicates in the manner required by the ISA standards.
The stakeholders of an organization include for example investors, members (in associations), and financiers such as banks. The purpose of an audit is to increase the trust of financial statement users in the financial statements. Various stakeholders are interested in an organization’s financial statement information, as it forms the basis for decision-making (such as investment decisions or loan approvals).
According to the Auditing Act, an auditor refers to a natural person approved as APA (in Finland HT, KHT, or JHT) or an approved auditing firm. The auditor has completed the required university degree and studies, acquired sufficient practical experience in the field, and passed the auditor exam successfully. In addition, other qualification requirements have been set for the auditor. The auditor’s work is monitored and continuous education is also required.
The accounting entity has the opportunity to voluntarily conduct an audit, even if the requirements of the Auditing Act are not met and there is no provision for auditing in the articles of association, rules, or other similar documents. There are many benefits to auditing, even if it is not legally required for the company.
Financial audits are conducted in both corporations and associations, as well as foundations. Housing and real estate companies are also often subject to financial audits.
The audit of a limited liability company
The audit is mandatory for limited liability companies in which at least two of the following requirements were met in both the ended and the immediately preceding financial year:
1. The balance sheet total exceeds 100 000 euros.
2. Turnover or equivalent revenue exceeds 200 000 euros.
3. On average, more than three employees are employed.
According to the Limited Liability Companies Act, the board of directors is responsible for ensuring that the supervision of the company’s accounting and financial management is properly organized. The CEO is responsible for ensuring that the company’s accounting is compliant with the law and that financial management is organized in a reliable manner.
In limited liability companies, the objective of the operation is to generate profit for shareholders. The role of the auditor from the owners’ perspective is essential in ensuring that the company has acted in the best interest of the shareholders and followed the principle of equality.
In Tuokko, we have a diverse range of limited liability companies as clients, ranging from large publicly traded companies to small and micro businesses.
Audit of Foundations and Associations
Foundations
Foundations are always required to undergo an audit according to the Foundation’s Act.
According to the Foundations Act, the foundation’s audit must be completed within six months of the end of the fiscal year. The foundation’s audit report includes an opinion on whether the foundation’s financial statements and annual report provide information on the foundation’s activities during the fiscal year that is essential for evaluating compliance with the foundation’s purpose and operational rules, and whether the members of the foundation’s governing bodies have been paid compensations by the foundation and its subsidiaries.
In the foundation, the board is responsible for ensuring that the supervision of the foundation’s accounting and financial management is organized in a reliable manner. The CEO, on the other hand, is responsible for ensuring that the foundation’s accounting is in compliance with the law and that financial management is reliably organized.
For example, unlike limited liability companies, the purpose of foundations is not to generate profit for their owners. The purpose of a foundation is determined by its rules. When auditing, the unique characteristics of each foundation and the realization of its purpose are taken into account. From an auditing perspective, it is also essential to review the operations of the various bodies within the foundation to ensure compliance with the Foundation Act and the foundation’s rules.
Associations
An audit is mandatory for associations in which at least two of the following conditions have been fulfilled both during the ended and the immediately preceding financial year:
- The balance sheet total exceeds EUR 100 000
- The net turnover or equivalent revenue exceeds EUR 200 000
- On average, more than three employees are employed.
The board of the association is responsible for ensuring that the accounting of the association is in accordance with the law and that the financial management is organized in a reliable manner.
The purpose of the operation of an association differs from that of a limited liability company. Associations are founded for the joint implementation of an ideal purpose. The association’s purpose is determined by its rules. The special characteristics of each association and the implementation of the purpose are taken into account in the audit. It is also essential for the audit to examine the operation of the various bodies of the association, to ensure compliance with the Association Act and the association’s rules.
Auditing of a housing company
According to the Finnish Housing Company Act, a housing company must have an auditor appointed by the general meeting if:
- the company’s building or buildings have at least 30 apartments under the ownership of shareholders;
- the auditor must be appointed based on sections 4-6 of the Auditing Act or other applicable legislation; or
- Shareholders who own at least one-tenth of all shares or one-third of the shares represented at the meeting demand it at the annual general meeting or at a meeting where the matter must be addressed according to the meeting invitation.
According to the definition of the Housing Companies Act, a housing company is a limited liability company whose specified purpose in the articles of association is to own and manage at least one building or part thereof, in which more than half of the total floor area of the apartment(s) is designated in the articles of association to be a residential apartment(s) under the control of the shareholders.
In a housing company, the managing director according to the Limited Liability Companies Act is represented by the property manager, who often acts as the liaison between the housing company and the auditor. Like other forms of companies, a housing company may also conduct an audit, even if the legal size limits are not exceeded. The auditor is often seen as a significant partner who acts as an external validator of the housing company’s operations, as well as an expert who takes into account the interests of the owners.
