What is an audit? For businesses big and small, an audit can be more of a maintenance check than a negative situation. Audits examine your business’ financial records to ensure they are accurate.
Through a systematic review of your transactions, accounting books and financial reports, an audit helps spot problems within your business. Audits find errors in your numbers and help with decision making.
For many businesses, a routine audit once a year is part of the schedule.
An important part of running a successful business is keeping clear accounting books that show your business’ incomes and expenses. This makes the auditing process much easier and smoother.
It’s important that your business is regularly audited by a third party. The audit report that comes after a business audit details what was found during the process and states whether your records are accurate, missing or inaccurate.
Types Of Audits A Business Can Go Through
When the word audit comes to mind, you may initially think only about IRS audits. However, there are several types of audits a business can engage in, such as external and internal audits.
An external audit is performed by a third party, such as, an insurance company, tax agency or the IRS. Some external auditors may choose to look at the complete picture of your business’ financial records while others may only focus on certain aspects of your business operations.
An internal audit is initiated by you and conducted by a member of your company. Internal audits can examine business operations and management to make sure everything is functioning perfectly, preventing financial mistakes, or checking in on company goals.
An IRS audit may take place after your business has been randomly selected for one or because of a discrepancy on your small business tax return.
If you’ve been notified of an IRS audit, it’s recommended that you find the assistance of a tax professional.
Preparing For An Audit
You should always be prepared for an audit. This means having your financial records in order and as organized as can be.
First, you should be able to conduct an audit trail and trace each and every one of your transactions. Where do your numbers come from? Auditors will want to know the details, so have them ready and organized, giving a clear view of all of your business documents.
For the audit itself, you’ll want to bring all of your financial records, such as bank and credit card statements, receipts, invoices and journal entries. During the process the auditor will test for accuracy and discover errors. The more information you have and the more organized it is, the faster the audit process will be.
Benefits Of A Business Audit
There are many aspect of a business audit you can benefit from, whether internal or external. For starters, a business audit helps you check for accuracy within your own records, finding errors that may be in your books or processes. This helps you prepare and prevent further issues or give you an early diagnose of situations that could have gotten worse in the future.
A non-IRS audit can even help you prevent an IRS audit, helping you avoid being selected for one in the first place.
They can also motivate you to improve your own accounting processes. If during a business audit your auditor doesn’t have smooth access to your records, this can help you improve the trail for the next time there is one.
Financial statements can be an important aspect in guiding business decisions, so verifying everything is accurate and finding errors in them can actually help you make better, reality adjusted decisions ahead.
Once you realize how helpful this can be for your business’ success, you don’t have to be nervous when hearing the word “audit”.