Many people think that the purpose of an audit is to detect fraud. While fraud -- and errors -- may be discovered, that is not the primary purpose for auditing your business financial records. Whether the audit is internal -- generated by management -- or external -- initiated by a regulatory agency -- there is no need to create an atmosphere of dread. Once you understand the audit function, you may even welcome it.
Reliability of Financial Statements
The primary purpose of an audit is to ascertain the reliability of financial statements. This should be of the utmost importance to anyone running a business. The audit will determine if you can count on the figures in your statements, and knowing this can inform your decisions going forward.
Quality of Supporting Records
The primary purpose of auditing encompasses examining the supporting records for your financial statement. The audit can uncover inferences and assumptions that are not supported by the records. This can improve not only your financial statement, but your record keeping.
Answering Questions about Effectiveness
You should go into an audit with questions you want answered. An audit may show your where you are losing profits, or explain why your cost-of-sales figures are rising faster than your sales. Keep in mind one to three important questions as you examine audit findings, and you may discover that an audit is a powerful tool for your success.
Check on Regulatory Compliance
An audit can tell you if you are in compliance with such things as accounting methods, inventory reporting, debt reporting and a host of important issues regulators are interested in. Being out of compliance need not indicate fraud; it can simply tell you what areas you need to focus on in the near future to avoid regulatory problems.
Generally Accepted Accounting Standards and Audits
According to the Federal Accounting Standards Advisory Board, an audit conducted to determine if accounting is in compliance with Generally Accepted Accounting Principles, has a strict rule. No auditor who is a member of FASAB may declare that a company is in compliance with GAAP if they find procedures that are not in compliance. One of the objectives of an audit is to determine if a company is in compliance with GAAP in its record-keeping.
- East Carolina University; Stepping Through the Engagement Process
- CA Group India; Objective and Scope of the Audit of Financial Statements
- cuna.org; Purpose and Goals of the Outside Audit
- InternalAudit.biz; Risk based internal auditing
- Audit and Management Advisory Services
- Federal Accounting Standards Advisory Board;