So it’s almost time for a routine company audit. Are you ready? An audit isn’t necessarily as uncomfortable as it sounds. If planned for accordingly, it’s a good way to check that everything is running smoothly. Preparing for a routine company audit benefits financial health, management, protocols, and every other facet of operating a business.
Purpose and Intentions of an Audit
An audit primarily reviews that your company is adhering to the Generally Accepted Accounting Principles (GAAP). In addition, they ensure that all financial statements follow the regulations set by the Financial Accounting Standards Board (FASB) and the U.S Securities and Exchange Commission (SEC). Everything related to transactions, including receipts, ledgers, and invoices, are looked at. The auditors ensure that these equate to the net loss and profit history of the period of time under audit.
Although your accounting department is responsible for checking and rechecking numbers, sometimes mistakes, or worse, fraud, occurs. An audit can find inaccuracies, and even innocent ones, before they create a serious problem.
Internal and External Audits
Auditors may assess a company using an internal or external audit.
- Internal: These auditors come from within the company. They typically perform routine checks as part of a management review, succession planning, or on behalf of board members. Although generally not held to certain auditing regulations, in addition to financial records, they also review other responsibilities including quality assurance, HIPAA and COBRA compliance, and cyber safety. Data breaches may not immediately seem like a topic for auditors, but it’s still a vital part of any management review. According to a 2018 survey by Compliance Week and Mazars USA, of the internal audit committees who oversaw cybersecurity, 25% did not track the efficiency of their cyber-risk programs.
Internal auditors may be supplemented by co-sourced or outsourced agents, to doubly ensure that all facets are comprehensively covered.
- External: Generally associated with the IRS, external audits may also be ordered by investors or insurance companies. These agents must follow certain regulations and procedures and are generally interested in just the financial operations. They look at overhead and expense numbers, underpayments or overpayments that are used to avoid taxations, undeclared cash, correct or incorrect deductions, and if possible, if lifestyles measure up with reports. (In other words, they note whether you and/or your employees are living well beyond what it seems like you can afford.)
Ideally, you have consistently kept financial records and notations accurate, and neatly and chronologically organized. Think of auditing similar to how you estimate the value of your business or prepare for an investment pitch. You should have detailed, necessary paperwork that presents a clear picture. Be ready to explain any transactions that may seem confusing or incomplete. Have print-outs of electronic records, and even handwritten calendar notes readily accessible. The more you can show, the better, even if it’s unorganized. It may increase your credibility. Also, make sure that everyone in the departments under review is available for questions and explanations. This saves time, eases the process, and can eliminate agents having to estimate numbers, which may be unfavorable.
Routine Company Audit Opinions
Audit reports declare whether or not companies are following the GAAP guidelines, and if records accurately reflect those regulations. The four declarations, known as opinions, are:
- Unqualified: Everything passes review
- Qualified: Something needs refinement, or cannot be completely assessed
- Disclaimer: Materials or procedures are too limited to review, so no solid opinion can be granted
- Adverse: Specific issues are noted that require attention
A routine company audit helps clarify how everything is the way it should be, or what areas need improvement. It’s an opportunity for recognizing the positives, and for learning how to make the company the best it should be.