What is an audit and why would I need one?
Audits involve a thorough examination of a company’s financial statements and they provide valuable information about a business. Oftentimes, businesses conduct audits to determine areas of their business that can be improved. Audits can help identify issues with operational efficiency and internal controls as well as find errors in the books and records.
Financial audits help business owners fully understand how their business operates, spends money, and takes on risk. This understanding is critical to the success of any business, regardless of its size.
Whether or not a small business should conduct a financial audit depends on a number of factors. The information collected can be used to prove to stakeholders that a business’s financial practices are sound. Audits can also be used to help companies obtain a small business loan. What exactly is a financial audit and why would your small business need one?
What is an Audit?
During an audit, an organization’s financial statements and related documents are reviewed to ensure they are reasonably accurate. Typically conducted annually, an audit aims to evaluate the company’s financial health by assessing its accounting practices, internal controls, and other financial details. The purpose of an audit is to express an opinion on whether the company has maintained proper bookkeeping or not.
Financial audits make sure stakeholders get accurate information about your company’s financial position. Besides offering a reasonable assurance, financial audits are used to ensure compliance with regulatory policies and standards and protect your business against potential frauds.
Auditors should not have a stake in the companies for which they conduct an audit. Therefore, a financial audit can only be conducted by an independent audit firm, not the management of the company. Furthermore, an auditor with a financial or other interest in a company cannot conduct an audit of that company. After the audit, the audit firm issues a statement on the integrity of the company’s financial documents.
There are two types of audits: external and internal. An external audit assesses your company’s financial statements and provides reasonable assurance to external stakeholders. Internal audits go far beyond that, and they can be conducted by the management of a company. By considering your business’ growth, reputation, sustainability practices, and employee culture concerning the financials, internal audits suggest ways to improve your company. Regular internal audits are an indication of strong internal controls, which is reflected in the integrity and objectivity of your financial statements.
Top Reasons Companies Conduct Audits
One of the main benefits of proper bookkeeping is that it allows business owners to seamlessly analyze expenses, and make any necessary adjustments to their budget. Conversely, by examining financial statements you can determine which products or services are generating the most revenue and make adjustments to increase profit.
Improve the Efficiency of Operations
By objectively reviewing your organization’s policies and procedures, you can receive assurance that you are doing what your policies and procedures say you are doing and that these processes are adequate in mitigating your unique risks.
By continuously monitoring and reviewing your processes, you can identify control recommendations to improve the efficiency and effectiveness of these processes. In turn, allowing your organization to be dependent on processes, rather than people.
Evaluate Risks and Protect Assets
An internal audit program assists management and stakeholders by identifying and prioritizing risks through a systematic risk assessment. A risk assessment can help to identify any gaps in the environment and allow for a remediation plan to take place.
Your internal audit program will help you to track and document any changes that have been made to your environment and ensure the mitigation of any found risks.
Assess Internal Controls
Internal auditing is beneficial because it improves the control environment of the organization by assessing efficiency and operating effectiveness. Are your controls fulfilling their purpose? Are they adequate in mitigating risk?
Ensure Compliance with Laws and Regulations
By regularly performing an internal audit, you can ensure compliance with any and all relevant laws and regulations. It can also help provide you with peace of mind that you are prepared for you next external audit. Gaining client trust and avoiding costly fines associated with non-compliance makes internal auditing an important and worthwhile activity for your organization.
An accounting professional can help you keep your financial records in order, making any audit run easier and faster. Partner with us today and we’ll help prepare you for your next audit.