In layman’s terms, a business audit is a financial investigation performed by an in-house or external auditor that looks into all aspects of financial records, account statements, business processes, and work procedures.
It is your responsibility as an organization or business to prepare for a planned or unplanned audit. There is no shortage of choices available to you when it comes to hiring an external auditor to prepare a financial report for your business.
Before choosing an audit firm, however, you need to understand the entire process and how to find a firm that can carry out the extensive fact-finding needed. Let’s dive into this subject by understanding the 3 main types of audits.
1. Internal Audit
In an internal audit, an organization’s books and financial statements are examined by an internal auditor, who is an employee of the organization. In such an auditing process, all aspects of the accounting process, billings, and financial records are examined.
By doing so, a particular department can be assured that the rules & regulations are being followed. A variety of industries can benefit from internal audits. You don’t have to hire or look for Certified Public Accountants (CPAs) to perform this work.
Certified Internal Auditors who possess the necessary qualifications can carry out the financial investigation process and uncover any type of irregularities involving forced manipulation of data, figures, reports, and statistics.
The actual process begins with the company’s management identifying the department where the audit needs to be conducted. Afterwards, the assigned auditor will collect all the necessary information in the form of official documents, records, bills, statements, and stamped papers, which is a sort of evaluation process.
Next, the internal auditor will submit a detailed report to the management about the findings, which may include errors and flaws. The critical areas are identified, shortlisted, and rectified accordingly. A particular process or an entire department can be analyzed.
The overall audit process is as follows:
- Identification of suspect or ‘critical’ areas
- Complete and extensive auditing
- Management reporting
- Following up with the concerned persons & departments
As part of the audit process, the company’s assigned in-house auditor will observe the workflow and procedures, while making important notes so that they can be assessed and reported to the management.
These workflows and procedures include financial documents, billing processes, receipts, statements, safety measures, and compliance with rules & regulations. This audit is done on a monthly, biannual, or yearly basis, depending on the needs of the company.
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2. External Audit
An external audit is conducted by an external auditor or an independent accounting firm, at the request of the recipient company. A thorough investigation is conducted of all financial statements and records of a business, company, or organization. In a sense, an external audit serves as an official certification of the company’s financial records and transactions.
As a result, a company’s standing and reputation in the market will naturally improve, whether dealing with other partners, collaborators, vendors, or financiers. A certification provided by an external audit firm may be requested by shareholders, suppliers, lenders, and investors.
An external audit should be performed at least once a year by a registered Certified Public Accountant (CPA). The audit can either be scheduled or unexpected.
An external audit is essential for the future survivability of any business, as it eliminates all biases that may exist in favour of that company when evaluating its financial records, transactions, and statements.
In the United States, all external audits follow the same standards, which are commonly referred to as the ‘Generally Accepted Auditing Standards’ (GAAS). These official standards are set by the Auditing Standards Board (ASB).
Companies must hire a third-party auditor or firm to perform an external audit. An auditor is generally selected by the shareholders at the Annual General Meeting of a company or organization. In this way, transparency is assured.
External auditors or appointed firms gather all financial and statistical data, accounting records, statements, bills, etc. to ensure that all are compliant with vigilance rules and regulations. When no irregularities, mismatches, errors, forced manipulations, or dissimilarities are found, a final report is submitted to management, along with their opinion.
After the auditing process has been completed, the organization is granted a certificate of compliance or an audit certificate. An important certification such as this can significantly improve a company’s reputation in the US. External audits examine your financial and accounting records in-depth and extensively. These audits are usually conducted annually.
3. IRS Audits
During an IRS audit, the Internal Revenue Service (IRS) verifies that the financial and accounting information provided in your company’s tax return is accurate.
This ensures that there are no mismatches or irregularities. IRS audits can take place if abnormal irregularities in your income or tax return amount are found, or your business may be chosen at random for an IRS audit. The tax return of a company can be audited anytime within six years of the first filing of the tax return. IRS audits, on the other hand, consider only returns filed within the last three years.
An IRS audit consists of three main processes. The first is the mail audit, then the office audit, and finally the field audit. Generally, mail audits consist of taxpayers receiving documentation requests from the IRS and responding to them by mail. In this situation, the IRS may request additional financial information and suggest some tax return corrections.
Office audits involve interviewing employees and reviewing bank statements, bills, accounting records, and online & offline transactions.
These audits are thorough. Last but not least, field audits require visiting the sites of key people and factories or offices. In addition to reviewing all the financial statements and tax returns, it also looks into where your business or company is located.
Conclusion:
Organizations and enterprises that wish to maintain a healthy, and transparent record of their daily business dealings, transactions, financial statements, and accounting records are required to conduct audits.
To have a good reputation in the industry and to be successful in a business venture, both internal and external audits are needed. Business Audits are therefore a necessity for every organization, large or small, to maintain a record of its financial processes and administrative functions.
This is how a business succeeds. Those who are seeking auditors can check out Ageras, where you can easily find and get access to the best auditors, accountants, bookkeepers, CPAs, and tax advisors.