Audits can seem like overwhelming and frustrating business tasks, but they can help organizations to improve their finances, revamp their processes and increase their profit margins. An audit memo provides a summary of the audit and the related recommendations to an organization. Businesses can either hire external auditors or use internal resources to conduct the audit.
Follow the Audit Memorandum Format
The format of the audit memo will vary based on the organization and the kind of audit conducted. Internal audits can focus on finances, operations and procedures. It's best practice for small businesses to conduct an internal audit annually to ensure all finances and processes are in check. Conducting an internal audit can help your small business improve efficiency and prepare for tax time.
External audits are conducted by an independent party outside of the organization. The independent auditor’s goal is to determine whether the business’s financial statements accurately represent their financial position. If there's an issue, the auditor will share where discrepancies take place and provide recommendations for the business to improve their financial books.
Begin With the Terms of Engagement
Begin the audit memo by providing context for the audit. Information to include in the introduction includes:
- Terms of engagement: What the goals of the business are for this audit. Goals can include improving efficiency, reducing risk and increasing profitability.
- Timeline of audit: Which fiscal year is being audited. An audit memo example may say that it's “auditing company accounts for the year ended 2018.”
- Auditor duties and obligations: How the auditor is helping the organization, such as with fraud prevention.
The introduction of the audit memo should provide the necessary information to inform the reader of the top-level goals and parameters of the audit. The reader can then review the body of the memo to learn more about the findings and recommendations in relation to the goals.
Detail the Audit Process
Review the process for the audit that the auditor has taken in the next section of the audit memo. This may include the meetings the auditor has taken part in with senior members of the business and the topics they've discussed. It will also include the documents and financial statements that the auditor reviewed as part of the audit.
As part of the process, the auditor may also list the members of the auditing team and their certifications. It’s important for the reader to know who's completing the audit and the level of expertise and experience they bring.
Cover the Findings
After the process section, outline the findings in the audit memo. This is the key information that the auditor has uncovered through their investigation. A sample memo for audit findings may include areas of significant risk and areas of great discrepancy between the financial statements and the financial standing of the company.
Be sure to be as specific as possible with dollar amounts and other numbers. It’s important to use the audit memo to provide a summary of the findings, so include the most important items that have been revealed during the audit.
Provide Recommendations for Improvement
Lastly, provide detailed recommendations that the business should undertake in order to improve any areas of risk or discrepancy. Relate these recommendations directly to the findings and the goals of the organization. If one of the major goals of the audit was to improve the company's financial processes to reduce risk, for example, then the recommendations should show the organization how they can better accomplish that goal.
It’s also important to include areas that are performing as expected so that the business knows to continue certain processes and financial practices. The audit memo can also provide recommendations to make certain processes more efficient and accurate.