Getting to Grips with Auditing

Auditing is the process whereby accounting practices are subject to their own scrutiny. As mentioned, it is a type of accounting though it is used to evaluate other types of accounts. Its primary purpose is to assess the legality of a company’s whole approach to financial record keeping. In short, it asks whether a business is being honest and honorable.

In many regions, auditing is a mandatory requirement and must be conducted once a year or biannually. Even if it’s not mandatory for your company, you’re strongly advised to complete regular audits. They are the best proof your business is reliable, legally compliant and a good investment prospect for shareholders and employees.

Learning a Little More about Accounting

As explained, the best way to monitor your company’s financial health is with accurate, up to date financial records. You can also use these records to determine how you compare to market rivals. They play an integral role in helping your business generate corporate connections and build trust with suppliers and competitors.

Financial health affects a lot of things your business might want to do or obtain. For example, loans are usually granted according to a company’s financial circumstances. The healthier its finances, the bigger the available loan.

Investors will assess your financial records to determine whether the business is a lucrative option and worthy of their time and money. Plus, submitting tax returns, paying taxes and recouping tax rebates is easier with high-quality accounting.

The Different Types of Audit for Businesses

There are various types of audit with different purposes and procedures. The type of audit chosen for a business depends on its industry, size and financial history. For instance, a financial audit is what we’ve already discussed – an in-depth looks at a company’s internal record-keeping practices and the legality of its transactions.

A compliance audit, on the other hand, specifically evaluates a company’s compliance with laws and terms that may materially affect financial records.

Both types of audit are common, but they are rarely performed at the same time.

The Consequences of Non-Compliance with Audits

The job of an independent auditor is to confirm legal and ethical compliance. They do not begin an audit with the assumption of wrongdoing. However, if they find errors or inaccuracies within financial records, they are required to investigate further.

If investigations detect evidence of intentional deception or wrongdoing, the auditor passes this information to a higher authority. Criminal proceedings or a penalty fine may be the eventual result.

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