FREQUENTLY ASKED QUESTIONS

What information must be provided for an audit of financial statements?

Among other information, and depending on the circumstances, information on the purpose of the audit together with the principal accounts comprising the financial statements to be audited, a description of the core business or organization, the global Internal Control System structure, volume of operations, level of compliance with regulatory entities, and due dates for the audit, etc.

When should an external audit be contracted?

An external audit should be contracted between June and August of the year to be audited.  This enables the Firm to perform an analysis at, as a minimum, two stages: the first between July and November (a defined month must be selected) known as the preliminary phase in which we review the interim financial statements; the second and final, once the financial statements are concluded in December.  The preliminary phase is particularly useful since it enables us to extract timely and crucial information on the company.  As a consequence, any financial, accounting or tax matters can be identified and resolved in time.

What is the principal benefit an external audit?

It ratifies the financial reality of the entity with respect to financial, legal and tax matters.  In addition, an external audit provides appropriate recommendations for improving the Internal Control System.  An external or financial audit should not be viewed as an activity that merely ensures compliance with regulatory entities.  Rather, an audit helps an organization to re-evaluate its business strategies that, in the long term, affect the company’s financial results.

Which companies controlled by the Ecuadorian Superintendence of Companies, Securities and Insurance (SCVS) require an External Audit?

As from 2016, companies with assets exceeding US $500,000 require an external audit.

When must audit reports be issued?

In Ecuador, companies regulated by the Superintendence of Companies, Securities and Insurance must issue their audit reports by April of the year following the audited year.  The actual date is based on the ninth digit of their taxpayer’s I.D. No. (RUC).

In other cases, the reporting date is decided by the General Shareholders’ Meeting, usually in the first quarter of the year following the accounting close. In some cases, issuance is dependent on the Parent Company’s requirements, especially with respect to consolidation of the financial statements.

What is the effect of a qualification in the external audit report?

Depending on the reason, a qualification may or may not affect the company’s image with third parties such as banks, suppliers, control entities, investors or possible investors, the parent company, etc.

What does it mean if a business has going concern problems?

It means the business or the company is experiencing difficulties in generating sufficient financial resources to meet its obligations with third parties and for its future operation. In such cases, the auditor must, when there is sufficient information, disclose this situation in an “emphasis of matter” paragraph.  Normally, the opinion issued by the auditor is not affected by inclusion of a qualification but, in an extreme situation, the audit opinion could be qualified.

What standards govern the external auditors when reviewing financial statements?

External auditors use worldwide standards, that is: International Financial Reporting Standards (IFRS), International Auditing Standards IAS (issued by the IFAC), local tax laws and other regulations depending on the nature of the company or organization.

Must an external auditor disclose when a business is not in compliance with a standard or law, etc.?

The external auditor is obliged to disclose non-compliance with any standard or law, including contracts signed with third parties.

What is the Report to Management?

In addition to the external audit on the financial statements, the auditor issues observations and recommendations on administrative, legal or tax aspects to ensure that such are effectively corrected by the company. This Report is also sent to the respective Superintendence.  The Report provides valuable and useful information for the efficient operation of the company’s business.