What is a business audit and why should you do one?
You juggle hundreds of duties as a company owner. It feels like hundreds, sometimes. It is difficult to find sufficient resources - money and time for a new cost.
Each growing business, however, must seriously consider investing the time and money needed for an annual audit of the financial statements of the company. An audit conducted by a CPA firm will help you function more effectively, protect your business from employee fraud, and improve the quality of your accounting records.
This topic describes an audit, discusses the variations between audit forms, and reviews why your organization is critically important to this process.
What is a business audit?
A business audit is a recorded review of whether, along with the criteria, facts, and conclusions used to perform the audit, the financial statements of an organization are materially accurate or not.
The findings are reported in the written opinion of the audit, and the terminology describes the audit in the opinion. On many subjects, an auditor reports on:
The accuracy of financial statements is relied upon by stakeholders, including investors, creditors and regulators. An audit is conducted to provide stakeholders with a higher degree of financial assurance.
Differences between audits
The distinction between external and internal auditors is crucial to consider since they each serve a different function.
An external audit is conducted by a CPA company and the accounting firm must be independent of the audited business. Independence implies that the only benefit that the CPA company receives is the audit fee, and the CPAs are unable to conduct the audit client's tax, consulting, or any other job.
A company employee, on the other hand, is an internal auditor, and these auditors are not independent. Many of the same steps that external auditors complete are undertaken by internal auditors. In fact, some of the work carried out by internal auditors could be relied on by a CPA firm.
Big corporations have a department of internal audit, but smaller businesses do not. For a client who does not have an internal audit feature, an external auditor will have to do further work.
An external auditor's audit opinion is deemed to be more credible than the work carried out by an internal auditor because the CPA firm needs to be impartial in giving an opinion.
Get a second opinion
An audit is a chance for a CPA organization to send you a second opinion on the correctness of your financial statements. By evaluating assertions, and whether there is evidence to support a specific claim, auditors perform work.
For starters, the presence statement addresses whether the assets listed on the balance sheet actually exist or not. A corporation could be tempted to inflate the number of assets in the balance sheet by the dollar, to make the company look more valuable. To resolve this risk, auditors use the presence statement.
Assess business efficiency
Rapid growth can cause an owner to lose organizational control, and company effectiveness can decrease. An audit shows areas of business inefficiency and encourages the owner to make adjustments.
By analyzing adjustments in the cost and revenue balances over a number of years, auditors analyze the income statement. For instance, assume that labor costs have risen over the last three years at a much faster pace than revenue.
Are you terrified of you, your business, or your non-profit getting audited by the IRS? Do you wake up in the middle of the night at the thought of hearing that knock on your door? Call Robert Arnone CPA today so you can get busy relaxing tomorrow! We also handle internal audits, of course. We specialize in helping HOAs, non-profits, small and mid-sized businesses make sure their books are in order so business leaders can sleep better at night. So if you’re even a little concerned, now is the time to act. Contact us today!