Most business owners cringe when they hear the word “audit,” but the truth is that an audit isn’t necessarily a bad thing. Once you learn more about what an audit is and how it works, you will see that there are a few ways in which your company can benefit from the auditing process.
What Is An Audit?
An audit is an inspection of your business accounts, including accounting systems, documents, and invoices. The goal of the audit is to determine if the financial statements are representing an accurate view of your company. An audit does not have to be conducted by the IRS. Typically, an audit is completed by an independent auditor who is separate from your company, to make sure that they don’t have any bias in the auditing process.
How Is An Audit Beneficial?
When an audit is completed, it can uncover certain things about your company that you might not have known. In fact, business owners are sometimes surprised by the outcome of the audit, and this process helps them see that they might have overlooked certain financial situations that were occurring in their company.
Here are a few ways that an audit can help your company:
- Identify problems and weaknesses with your accounting system, allowing improvements to be made to eliminate these problems in the future. It might be discovered that the system isn’t tracking certain transactions correctly. Or maybe you will find errors in payments that need to be corrected.
- Uncover fraud, which could potentially include situations where employees or management are stealing money from the company. An auditor will identify discrepancies so that you can eliminate the problem.
- Identify poor accounting practices, such as employees who are getting lazy about performing the correct financial tracking steps. It is hard to see these issues unless you can view the overall picture, which is possible with an audit.
- Improve tax planning, to ensure that you are ready for tax season and that you are leveraging tax write-offs and benefits as much as possible. By planning ahead, taxes are less stressful and easier to file.
- Strengthen the credibility of the company's financial records, which is important if you are planning to sell within the next few years. When you have documented information showing the success of your company over multiple years, then it will be easier to prove the financial security of the business.
One of the biggest benefits of an internal audit is that you can get a clear understanding of the financial situation of your company. By identifying cash flow, margins, and other financial information, you will have all of the details that you need to ensure that you are making wise financial decisions. A good audit will give you a precise snapshot of everything that is occurring within your business so that you can make accurate judgements about the financial situation of your company.
When business owners understand the true benefits of an audit, they make it a point to have an independent auditor look at their books on a regular basis. Do you need help with auditing?