Risk management vs Accounting



Risk management is the science to detect financial threats before they materialize. By the turn of the Millennium the demand for Risk Management practices became more intense. The trend of business enterprising in the last 3 decades has changed drastically. Entrepreneurs are fighting to get money through the front door, while it is flushing out through the back door.

The questions asked by entrepreneurs shifted from : How much money do I make, How much taxes do I owe, and where is my money to; Where am I losing money, Why am I losing money, and what can you help me with to contain my losses. This action is a before the fact practice while Accounting report on after the fact events. The science is completely different and therefore an explanation is necessary.

When your accountant compiles a Financial Statement, it’s not Audited, and therefore no expression of accuracy is stated. In the Tax Office perception this scenario indicates the lack of several analytical reports that supports the effectiveness of your Accounting platform.

When the Tax Office establishes that the financial statements was based upon a compilation engagement, what is truly being said by the Accountant tis that:
Stock pricing were not controlled, Sales were not verified, Gross Margins were not assessed, Tax compliance obligations are not fully sustainable and outlines lack of control within the administration. This condition is a financial Death Warrant that must be executed by the Tax Office resulting in severe economic backlash for businesses.

Why Risk management?
Risk management contemplates the administration platform procedures to determine the  operation policies effectiveness, tax compliance deficiencies and detect the existence of any fraud heat map. Many Audit firms offer the COSO framework as the Enterprise Risk Management solution, however technology and insufficient understanding of fraud practices constitutes the biggest threat for Small & Medium Size businesses, placing the COSO framework in the obsolete field if not reinforced with Forensic practices.

Optimization of revenues, reduction of costs, and financial transparency is only possible after a Risk Audit is conducted that would outline the deficiencies and ineffective actions by the management and high value recommendations are presented to secure the possibility of a financial backlash.

Currently there are not many Audit firms that perform these types of Audits considering the focus of most businessmen accentuates Taxation inconveniences and not the fire wall to prevent the possible financial setbacks, meaning the focus is causing more harm than good in the cash environment.

Prudential Tax Services can assess your platform to protect your hard earned financial assets and recommend solutions to your current financial situation while accounting only reports the results after the fact. The scope and limitations of a Financial Audit vs Risk Audit can also be interpret as follows when making the comparison:

Financial Audits:
Financial Audits do not measure efficiency or effectiveness of internal controls
Financial Audits do not measure management performance levels
Financial Audits do not disclose operating risks
Financial Audits do not evaluate business profitability
Financial Audits are not intended to detect fraud practices
Financial Audits do not promote business growth

Conclusion of the explanation:
A Risk Audit contemplates all the necessary business economic studies that  Financial Audit doesn’t..