Audits call to mind frenzied office workers scrambling to pull together information for an auditing inquisitor. However, accounting audits can actually be opportunities to upgrade your bookkeeping systems so they are more accurate and relevant.
The objectives of auditing are to check your numbers and verify whether your paper reporting matches the sums in your bank accounts.
Performing an Internal Check
Your business may have set up a bookkeeping system early in its developmental process, and then you stuck with that legacy system because it was easier than switching. An internal check takes a close look at your systems to assess whether they really are the best ways to organize your accounting information. The objectives of an internal check are to evaluate your fundamental accounting processes and suggest upgrades when necessary.
Verifying Accuracy and Authenticity
An internal audit will also look at your numbers to see that you have entered information and made calculations correctly and that you've entered information into the correct categories. If you've entered supply purchases as materials expenses, then your numbers won't reflect the real cost of each unit you sell. An audit will also verify that the purchases you entered were actually made, such as by cross referencing accounting information with receipts and bank statements.
Considering Assets and Liabilities
If your accounting system reports that you have purchased a vehicle or a piece of equipment, an audit could take a look at your parking lot or manufacturing facility to determine whether you actually have that item on site and whether you're using it for business purposes. Auditing is also an opportunity to make sure that these major purchases are accurately reflected on your balance sheet and that they have been depreciated using generally accepted accounting principles.
Reviewing Financial Statements
After delving into the nuts and bolts of your accounting system, a thorough audit will also take a look at the ways these numbers are compiled in your financial statements. Your profit and loss statement should reflect all of your revenue and expenses during the period it covers. Your pro forma cash flow should show trends and continuity consistent with the figures you reported for previous accounting periods.
The Principles of Auditing
To be useful and even legal, an audit should be performed according to a widely used set of principles. These include integrity, or a commitment to fairness and trust, and confidentiality, or the need to keep privileged company information from becoming public knowledge. Auditors should also be independent to ensure the objectivity of their conclusions, and they should use an evidence-based approach, considering facts and figures ahead of subjective insights.