Our Audit Methodology

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Our Audit Methodology

Our audit approach is based on a thorough understanding of our clients’ businesses and is risk-driven. it is specifically tailored to identify and address significant risks that might have material impact on the financial statement. We examine your key business processes, evaluate controls, and perform substantive test to get an understanding of your relevant issues.

The following is an overview of our audit methodology:

  • Planning

The planning stage is a crucial part of the engagement, it involves preliminary judgement of materiality, understanding of business environment, operations and internal controls. It involves development of a bespoke audit approach to meet your organizational need.

  • Risk assessment

This stage involves consideration of risk environment. It involves an assessment of inherent risks both at financial statement and at account balance levels. We will carry out a detailed risk assessment of the organization’s business activities, evaluate the internal control structure and work with your financial team to ensure that the audit effort considers the risk environment.

  • Evaluation of internal controls

Robust internal controls are the key to a more stable organization. This stage involves evaluation of internal control and assessment of control risk. At this stage we will evaluate the design and implementation of your controls and carry out test of and operation effectiveness of the controls. This will inform the extent of substantive work to be done.

  • Audit testing

At this stage, based on our understanding of your transactions and the effectiveness of your controls, we will implore the substantive procedures that is appropriate to obtain sufficient audit evidence. We expect to perform many of our audit procedures on a preliminary basis. By performing many of our audit procedures before year-end, there is less strain on your accounting staff during the fiscal year-end.

  • Conclusion and reporting

In order to ensure that our final audit is of the highest quality, the files and reports will pass through several reviews, many of which will be performed in the field. Upon completion of our reviews, we will meet with you before the financial statements are finalized to discuss the results of the audit process. We will provide a management letter, which includes internal control weaknesses noted during the audit and our recommendations for improving your operations. We will also provide information regarding any new accounting pronouncements, tax issues and other issues that impact your organization. We will work with you to understand the impact to your organization and to provide you meaningful implementation advice. We will be available throughout the year to answer any questions that may arise.

Our Audit Methodology

"Not every customer who owes you today will pay you tomorrow."

This simple reality is the foundation of Expected Credit Loss (ECL) under IFRS 9 – Financial Instruments.

Unlike the old IAS 39 model, which recognised losses only after a default occurred, IFRS 9 introduced a forward-looking approach. Rather than waiting for customers to default, entities are required to estimate potential credit losses using historical data, current conditions, and reasonable forecasts of future economic events.

The Three-Stage ECL Model

IFRS 9 classifies financial assets into three stages based on changes in credit risk:

This ensures that impairment provisions reflect changes in credit quality throughout the life of a financial asset.

Why Economic Conditions Matter

Expected Credit Losses are influenced by more than historical payment patterns. IFRS 9 requires entities to consider forward-looking information, including inflation, interest rates, exchange rate movements, unemployment, and overall economic conditions.

As these factors worsen, the likelihood of customer default increases, often resulting in higher impairment provisions—even before any actual default occurs.

Illustrative Example

ABC Limited has trade receivables of ₦100 million and initially estimates an Expected Credit Loss of 2%, resulting in an impairment allowance of ₦2 million.

As inflation rises and customers experience cash flow challenges, management revises its expected loss rate to 6%. Consequently, the impairment allowance increases to ₦6 million, despite no customer having defaulted.

This demonstrates the essence of IFRS 9: recognising expected losses rather than waiting for actual losses to occur.

Why It Matters

Expected Credit Loss is more than an accounting requirement—it is a proactive risk management tool. By recognising potential losses early, organisations improve the reliability of their financial statements, strengthen credit risk management, and provide investors with a more realistic view of financial performance.

Final Thought

Economic uncertainty is inevitable, but delayed recognition of credit risk should not be.

The Expected Credit Loss model under IFRS 9 encourages entities to move from a reactive to a forward-looking approach, ensuring that financial statements reflect both today's realities and tomorrow's risks.

In an uncertain economy, the strongest financial statements are those that anticipate risk—not merely report it.

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