If your firm or organization needs an audit due to industry guidelines, investor recommendation, or complying with regulatory parameters, don’t think of it as bad repute or negative. Audits, either internal or external, offer many advantages. Barring the cost it will take you to hire a good auditing firm, there are no losses from conducting a thorough audit. Getting detailed audits will help you plug the leaks that are costing you a fortune in losses.
A year-end audit pinpoints the precise management areas that need improvements. It also provides you with systematic inconsistencies, redundancies, and errors that could be eliminated to produce better business outcomes. Further, it also provides you with administrative data that can be used to improve operations.
An audit studies the organizational operations, practices, tools, and other business-related processes in order to find out areas of strength and weakness.
There are two types of audits: internal & external.
Internal audits examine a company’s internal processes, rules, and data, and are carried out multiple times a year. External audits give an objective assessment of a private venture’s accounting data, explain proficient administrations within a firm. There are benefits to both of these auditing types.
But before we dive straight into the benefits, you should know about how the auditing process works and who can carry out audits for you. Usually, an audit is authorized by the management or board of directors themselves.
The auditors then plan the process by evaluating different processes and functions within the organization. Gather and round up the facts, surveys, spreadsheets, balance sheets, and talk to the key players in operations to form a holistic picture of the operations.
Further, they will analyze those data sets and come up with findings, usually disclosed in an audit report. The report also highlights the auditor’s recommendations that the company is supposed to follow if they want to clear the redundancies and loopholes within their framework.
These findings are usually done by auditing firms that employ Chartered Public Accountants or CPAs to carry out the audits. CPAs reach where they are through extensive training and study. CPA resources, like the Wiley CPA, help these aspiring accountants on their journey toward full-time certification.
Benefits of internal audit
Here are some benefits that can be realized from having an internal audit:
Famous corporate fraud cases have proved that there is a need for more stringent controls and regulations. The Enron fiasco that played on TV made people aware of the internal malpractices going on in big firms. Other corporations have also been found to be involved in such criminal practices, which has been revealed only when the auditors dug up the dirt.
This has led to the development of the COSO system, which is a framework of controls that ensures that industries stay compliant with best practices.
Internal audits are great at spotting redundancies in your strategic policies and systems and help you overcome cumbersome and deliberately opaque practices, that are barriers to greater streamlining.
Solid internal controls
Assessing and keeping in strict compliance with your venture’s control climate is your internal auditor’s main goal. Internal audits assess your inner controls and frameworks, which regulate and oversee activities, practices, and operations.
Internal audits investigate your network’s safety climate, counting all your advanced digital devices, for example, and inspecting whether they are procured following credible standard operating principles. They likewise search for weaknesses in your computerized frameworks and networks and exhort on the best ways to fill in gaps in your security apparatus.
Benefits of an external audit
Public accounting firms are typically responsible for carrying out external audits. Certified accountants arrange a meet-up with the CEO or management, Board of Directors, etc., and share their plan with them as to how they will go about doing the audit.
They are granted access to the organization’s books and accounting records. External audits are most suited for entrepreneurs because these help them identify their areas of improvement, cash losses, and other business and finance-related recommendations.
Most entrepreneurs are clueless when it comes to bookkeeping standards. With knowledge of only the basic accounting rules, which is the best-case scenario, they’re still unable to get to key insights regarding their finances.
Certified accountants, on the other hand, audit data and give entrepreneurs the knowledge on how to make operations more precise, legitimate, and rewarding. Gaining compliance to certain industry practices also helps entrepreneurs easily secure funding and loans from banks and investors.
Entrepreneurs use external audits to find mistakes in their accounting data. Errors in accounting data limit entrepreneurs in terms of their potential for growth. Similarly, entrepreneurs are not trained or skilled enough to reach conclusions on their own based on the financial data available.
Patterns inform entrepreneurial decisions, like crystal balls, about getting organizational results and making sound financial decisions well into the future.
External audits also make sure that the organization is showing compliance according to certain accounting principles, like the Generally Accepted Accounting Principles, or GAAP. These include noteworthy U.S. and international authorities on accounting norms and their controls, frameworks, and rules that should be followed while planning business financial data.
One of the most significant advantages of conducting an audit is that it assists with instructing entrepreneurs on the significance of financial information in business.
Businesses work closely with external auditors to institute the right bookkeeping procedures. External audits provide the businesses with the best principles of bookkeeping and accounting data so that their business can also benefit from these tried-and-true methods.
Financial fraud or hiding wealth to evade taxes can be unearthed in an external audit. Exaggerating profits, stock worth, or other finance-related parts of the business to manipulate investor decisions are bad practices that some bad elements might be using.
Through an external audit, we can know how much tax does our organization owes. The need for external audit for a private venture is even more because the tax returns are highlighted on the entrepreneur’s very own personal tax return records.
To sum up
Try not to let the word ‘audit’ strike dread in you. Regardless of whether you’re a multi-million-dollar company, a little firm, a mom-and-pop store, or an individual entrepreneur, don’t let yourself be misled into thinking that an audit can only mean bad things. The advantages of doing an audit, internal or external, are numerous: from helping you garner credibility, compliance, ensuring security, and legitimacy, to letting you understand your own financial books, identifying areas of improvement, and helping you with your tax records.