Audit & Accounting

Companies required to appoint a statutory auditor

In accordance with section 154 of the Companies Law in Israel - חוק החברות. A limited liability company, otherwise known as SARL "Hevra Baam" - חברה בע "מ, is obliged to appoint a Statutory Auditor.

A statutory auditor is an outsider to the company.The role of the auditor is to verify the accuracy and regularity of the annual financial statements drawn up by a company or other institution, by carrying out an accounting and financial audit.

What exactly is an accounting audit?

An accounting and financial audit is an examination of the financial statements of a company (institution, foundation, association, or any organization with accounting records).

The purpose of the annual audit is to verify the accuracy, regularity and conformity of the financial statements, and their ability to reflect a true and fair view of the financial position and accounting policies of the audited entity.

This review is carried out by a professional called the "Statutory Auditor".

Independent auditors: the backbone of the economy

In order to be credible, this Statutory Auditor must be independent - בלתי תלוי,. This means that it must not be subject to the company's control. On the contrary, they should be able to carry out their activities as independently as possible.

Indeed, today's entire economic market relies on the independence and sincerity of the statutory auditor's work.

Why does today's economy rely on the statutory auditor?

Imagine you have a sum of money you'd like to invest, say 5,000,000 shekels.

You have several choices:

• Put it in the bank, and earn around 1% a year, or 50,000 shekels/year.
• Buy and rent one or more apartments, which will earn you between 3 and 4% per year, on average. That's between 150,000 and 200,000 shekels/year.
• Invest this money in a company (whether publicly listed or a simple start-up). With the potential for exponential growth, sometimes reaching 100% in annual profitability. Which means you can double your capital every year.

As you can see, we've chosen to start from the least risky solution to the most risky, but also from the least profitable to the most profitable.

Let's say you're ready to take a controlled risk, and you want to invest your money in a company with strong growth potential. Before you invest this large sum of money, you're obviously going to analyze the balance sheets of this "miraculous" company.

But this raises two important questions:

• How can you be sure that what is written in black and white on the company's balance sheet is reliable?
• Does a company's balance sheet really reflect its economic situation?

The solution: Appoint a statutory auditor

In response to this problem, the current legal system has decided to appoint a person independent of the company: the Statutory Auditor, whose role is to verify the accuracy and reliability of the company's balance sheet.

So, thanks to the work of the Statutory Auditor, you can find out whether what is written in the balance sheet really reflects the financial health of the company in question.

Just because it's kosher doesn't mean it tastes good.

To conclude this article, we decided to quote Professor Hertzl Fatal, Professor of Accounting, Dean of the Faculty of Management in Israel:

When the statutory auditor certifies that what's written in the balance sheet is reliable, it doesn't necessarily mean that you should invest in the company. It only means that what is written in the balance sheet reflects the company's economic situation. If you want to know whether or not to invest, you need to carry out an in-depth balance sheet analysis.

As a comparative example, when you go to a restaurant, you check if it's kosher, by checking if it has the Kosher Toudate.

This Teudah certifies that what is served on your plate will be Kosher, but not necessarily that it will taste good..