Historically, financial auditing has a foundation in detecting fraud and keeping businesses accountable. Over time, due to dishonest business reporting, audits have transitioned from being executed by in-house managers to an area for independent auditors to stake their claim.
The SEC eventually mandated outsourced auditing for public companies after the McKesson & Robbins bootlegging scandal. Audits are ultimately necessary for publicly held companies, or brands that anticipate an IPO sometime down the line. Accepting funding from any governmental entity will require a financial audit report, as well as banks if you’ve taken out a loan with them.
Getting an audit can even determine whether any loans will see approval or rejection, and affect the interest rate given you receive approval. As for IPOs, companies planning on a public offering won’t be able to move forward without auditing documents for current and past years. For these critical reasons, financial audits are a vital piece of anti-fraud business procedures - know the stages, and prepare your business before an auditor reaches the doorstep.
A large part of your financial audit checklist is simply knowing what each phase entails, and how to prepare for them. Read on for some tips on each stage of a financial audit.
Know the Phases of a Financial Audit
This first portion of your financial audit checklist is focused on collecting honest information related to your business transactions, which will help to understand where your company lies financially. Starting out a business financial audit requires some sort of data collection plan, so be sure to choose your plan wisely.
Using a fitting data collection method will help to reduce errors during financial analysis and work to maintain the story told by your financial statements. Keep your decisions informed and be thorough when planning your course of action.
The financial definition of internal controls describes them as rules and protocols a company uses to maintain the consistency of accounting history, in an effort to fight fraud. So, along with your data collection procedures, an auditor will surely look into your financial processes as well.
This is a big part of your financial audit checklist - the key is to have internal controls firmly in place, and to follow them as closely as possible. This will help for when you need to backtrack to find a set of transactional documents. Plus, it’ll speed up the auditing phase - the sooner an auditor has a complete report, the sooner your business’s financial standing can be secured.
This is a follow-up to the last phase, meant to test your internal controls. Auditors might do this by extending the inspection, watching over internal procedures in-person, or digging deeper into your past business transactions. The advice for the internal controls phase applies here; if your company has an established set of financial protocols and sticks to them closely, then the road is paved to move forward.
Finally, you’ll get the results of your business’s audit in the reporting stage. There’s a range to the different ratings assigned in this phase. The best rating available is called an unqualified approval. Going from best to worst, the next is a qualified approval, disclaimer, and an adverse finding.
The financial audit report itself is a summary of what was evaluated during the earlier phases, i.e. any financial statements and bookkeeping processes your auditor took note of. In the case of any errors found by the audit, do what mindful companies do and improve on any disorganization or flawed procedures.
Escape the Headaches All Together with an Online Bookkeeping Service
If there’s a message to be learned from the auditing process, it’s that organization is key in financial management. Audits can be daunting if your documents are mismanaged, or feel like a breeze if your information has been well-organized. To absolve yourself and your company from this responsibility, consider an online bookkeeping service, which tracks and records every invoice and document for easier auditing. Switching to an online bookkeeping platform will also help to smoothen out choppy workflows and ensure that your company receives timely payments. Automatic invoicing takes the time and effort out of tedious financial tasks which in turn saves energy for client-facing projects, all while speeding up your payment processing. With most small businesses turning to online accounting services, it’s quickly becoming a contemporary necessity for competitive companies.