Assessing financial health and keeping track of monetary records in business is quite challenging these days. However, every firm ranging from SME to large size has to summarize account information and streamline financial documents in one place for a quick review. No doubt, the review comes under an audit process that organizations undergo to make sure all the departments regarding financial statements are on the same page.
What Is an Audit in Accounting and Finance?
An audit is a term known as a financial audit in the world of accounting and finance. However, audit is the inspection and evaluation of financial statements and its purpose is to check the accuracy and representation of financial records provided by the company. Additionally, the financial audit takes place under the supervision of an internal audit team within a firm or sometimes a certified auditor from outside conducts an audit.
Key Features of Audit
The audit has three major types that include external audit, internal audit, and internal revenue service audit.
- The external audits take place under the expertise of Certified Public Accountants and firms.
- External audits include the inspection of both financial statements and the internal system.
- The audit is clean when an auditor doesn’t highlight any mistakes while reviewing the statements.
- Internal audits take place to bring improvement in the internal affairs of the company regarding managerial aspects.
An Overview of Understanding The Audits
An audit is a thorough inspection of individual and company accounts. It’s a review that takes place in firms by internal audit teams or by qualified third-party firms. The target of an auditor is to inspect financial statements in a yearly audit plan including income statements, balance sheets, and cash flow statements.
Hence, an audit is a legal requirement of a company that points out the misrepresentation of financial information and allows CFOs and managers to avoid mistakes and overcome fraud. External audits are performed on the principles of generally accepted accounting standards. However, international standards also imply organizing a smooth auditing process. If you are interested in audit, The Pro Accountants has got you covered with a quick audit process.
Importance of Audits
Audits are of great importance whenever we talk about finance management and accounting. Without conducting an audit, it becomes difficult to assess the strengths and weaknesses of a firm. However, the best part of an audit is to follow proper reporting standards to figure out the financial position of a business. More importantly, an audit is equally important for lenders, stakeholders, consumers, suppliers, and accountants who are a part of the organization.
Let’s take a look at the importance of auditing processes that help companies!
- The auditing process gets rid of inefficiencies
- Auditing helps to improve production and business operations
- Audit helps companies meet compliance requirements
- The audit allows companies to establish a procedure for monitoring
- Audit assists organizations to prevent fraudulent activities
What are the Different Types of Audits?
Auditing is a thorough process conducted by certified and professional auditors who are liable to inspect the financial accounts of individuals and companies. The process includes internal, external, and internal revenue services that come under taxation matters. Let’s overview the types of audits!
External Audits
External audits take place by authorities who are not a part of your organization. These are the certified auditing firms and third-party auditors who review financial statements and check accounting records. The purpose of the inspection is to avoid misstatements and false representation of accounts to provide clear opinions.
Subsequently, the outside party acts as neutral while inspecting statements and doesn’t include any biased opinion. When the audit is accurate, the auditors provide a clean statement and straightforward opinion with confidence. With this, stakeholders and chief financial officers get a chance to make informed decisions after the successful completion of an external audit.
Above all, the external audit process follows a principle of generally accepted accounting standards (GAAS) that don’t create issues in the firm, as the auditors follow a set of standards and always come up with honest opinions. Of course, they aren’t biased and that’s the benefit of external audit.
Internal Audits
Internal audits take place inside the organization by the internal audit team. These are the professional auditors who are a part of the same firm. The management decides whether there is a need for an audit or not, so they hand over the job to the internal audit team to prepare a proper audit report. Later on, the CFOs and higher management view the reports and make decisions that go in the favor of the business.
Moreover, the internal team also follows the generally accepted accounting standards while inspecting the financial records and statements for an audit. The purpose of this audit is to review managerial roles and track in-house operations in compliance with laws and regulations. However, this internal audit provides benefits to organizations by keeping a check on internal control and finding flaws.
Internal Revenue Service (IRS) Audits
The IRS stands for internal review service audit that takes place to keep a check on taxation matters and particular transactions. In this audit, the auditors keep a check on taxpayer’s returns and figure out the issues with the return. It links with complications and the audit team finds the malpractice of a taxpayer. The team does a detailed comparison of tax returns of the same party and figures out the errors. Let’s take a look at the best outcomes of IRS audits!
- It doesn’t change the tax returns of individuals and companies
- The change appears that a taxpayer can accept
- Change appears that a taxpayer can disagree
With the acceptance of change, a taxpayer has to be ready to accept the penalties or he/she may pay additional taxes. On the other hand, if a taxpayer disagrees, then he/she may have to go for an appeal.
What is the Most Important Purpose of an Audit?
The purpose of the audit is to review the financial activities of a business. Auditors review the financial statements to check whether the company represents the true picture of accounting and finance standards. Therefore, they also inspect the financial status of a company and ensure the best practices are being followed. The experts also analyze the tax returns to check the feasibility and accuracy of tax credits, deductions, and income. They also find out the flagged returns during the audit and take action to settle things.
Are Audits Good for Business?
If you are running a business and looking forward to keeping a check on your financial activities, you have to overcome mistakes and false representations of financial statements. For this, you have no choice but to conduct an audit. However, audit drives negative feelings, as it falls in the category of inspection that companies don’t like to have. But there is no other choice but to go for an audit and review the complete financial well-being of a company. This is why, tax agencies review tax returns to ease the audit process.
How Does The Pro Accountant Prepare an Audit Report?
Are you looking for a quick audit to get your financial report ready? Get in touch with The Pro Accountants to get your audit done under the supervision of professional accountants. Our top-notch and certified accountants conduct a thorough audit by analyzing your financial statement and tax returns. We are a team of intellectuals who take care of internal, external, and internal review service audits. For a quick consultation, you may contact us here.
Conclusion
Conclusively, audits in accounting and finance have great importance and value for companies. Many companies review their accounts annually and undergo audits to fix their financial statements. It’s a way to check the misstatement of accounting records and fix the errors featured in audits. In this way, the managers and chief executives get a chance to make informed decisions.
