Most businesses are subjected to external audits at some stage – these form part of the legal requirements for running a business. Small businesses, however, are not subject to as rigorous a set of reporting standards and controls, and therefore are not subject to mandatory audits. However, no matter the size of your business, to truly evaluate its state and success, it’s important to conduct audits on a regular basis.
A financial audit involves a thorough analysis of a business’ past and current financial position, designed to verify and evaluate the effectiveness of its financial operations. It can help you to detect circumstances that could lead to financial problems in the future.
Risks to the business’ future success
A management audit, although much broader in scope than a financial audit, aims to detect potential managerial problems that might threaten a business’ existence or future success.
You might think that you understand your own business so well that a financial audit is unnecessary… The truth is that, too often, a small business owner-manager is so closely involved in the business’ daily operations that he/she may (RC) never recognise its primary problem areas or finds it difficult to view them objectively. This can make it difficult to assess the need for change in the business’ environment, structures, and policies.
The external audit’s objectivity
An audit, especially if it is conducted by an external expert, can provide an objective picture of what is really going in your business. A financial audit, in particular, can help you to:
- Prepare for a possible external audit
- Keep your accounting and reporting systems in order, closing up any gaps
- Learn from the past and put in place plans for the future
- Pinpoint areas of unnecessary expenditure and possible improvement
- Discourage internal fraud and theft
- Look beyond the numbers to what they say about opportunities for business growth and risks
- Stay in touch with the necessary regulatory, compliance, and reporting requirements.
With expert help, you can ensure that regular financial audits are properly conducted on your business’ accounts.
Evaluating the business and the risks
If you want to conduct your own audit, to help (A)you can learn more about your business, consider the following steps:
- Review financial and accounting systems, including documentation and records, as well as timings to ensure that mistakes don’t creep in
- Ensure that all records are properly stored for the required length of time and that they are easy to access so that issues can be dealt with in a timely manner (A)
- Go through each step of your business’ accounting system, including entries and invoicing, and make sure all necessary accounts are present and balance correctly
- Review your business’ control policies (including the separation of accounting duties, access to accounts, and password-protected accounting software) and see if they need to be boosted to provide protection against theft and fraud
- Analyse tax records and tax returns. Make sure that they are properly stored and tally with internal records.
As pointed out above, there are other kinds of audits that be conducted to evaluate the current state of your business, depending on your needs. A financial audit is a good place to start as it is an essential step to achieving business success and can help (RC) you to fulfill your assurance obligations.