When does an audit need to be conducted?
An audit is the assessment of the financial report of an organization. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, & notes covering a review of substantial accounting policies & other instructive reports.
What is the main purpose of an audit?
The main objective of an audit is to have an accurate judgment on the evidence that is provided in the financial report completely, & not just the probable irregularities. It may appear that auditors, in general, are only looking to monitor fraudulent behavior, it is not viable to be certain that scams will be detected.
An audit is valuable as it gives integrity to a set of financial statements & builds a level of assurance for investors that the accounts are reliable & non-faulty. It also helps to monitor & enhance a company’s internal controls & systems.
When Should You Conduct an Internal Audit in Your Business?
Auditing your books of accounts are a precious tool for an organization of any size. To keep your business healthy, reflect on conducting an internal audit at the following times:
1. Before pursuing an investment:
If you ask investors for finance, they will firstly & most obviously want to conduct a complete review of your company’s financial statements.
On an understandable note, it is inappropriate to find something that is inaccurate. It may give an impression that something is being hidden or some fraudulent behavior is being performed within the organization.
Therefore, before approaching any financer, prepare proper financial statements that can be presented on the demand of stakeholders. Before presenting them, check & recheck both your prepared statements & all the information used to prepare them.
2. If there is a discrepancy noticed in your books of accounts:
At the end of the month, it’s repeatedly frequent that your account consists of a variance in monetary figures unexpectedly. It is not wise to ignore the divergence.
It is a high possibility that when you are revising across your journals, you may discover that two numbers were altered. Probably, a discrepancy in one of your processes is causing employees to make errors.
Even if the inconsistency appears to be minor, you want to be certain that it isn’t the symptom of a larger problem that could multiply & cost you an unnecessary added expense over time.
3. When key employees resign:
When your key employees are resigning try to understand the exact reasoning & to conduct an audit in sectors they were working for before they leave. You may not want to be left in a faulty work situation after your employee has left.
To accelerate this process, encourage at least a month from all employees, & avoid creating a habit of instantaneously walking them out when they give notice. Except, in cases of terminations for misconduct, you want departing employees involved in the transition, & you want them to resign on positive terms.
4. If Profits or Cash Flows Are Declining:
Profit or cash flow drops are usually accused on market conditions, but market conditions aren’t always the actual cause. For instance, your company may not be heeding appropriate attention to cost controls or accounts receivable.
To explain a decline, the audit must be performed on sectors such as production & inventory as well as financial areas such as billing & collections. Even if there is already a cause detected outside the organization, it is feasible to seek ways to improve internally to help you withstand the slump.
5. On a Regular Schedule:
While problems with your business might signal the requirement for an audit, it’s better if you conduct regular audits that can reveal prospective issues before they become major problems. If you want to start profiting, is it wise to assure the positive health & growth of your financial situation. The constant monitoring & evaluation of your product quality & customer service levels will make a vibrant difference.
Audits can range from daily counts of cash & key inventory to monthly account reconciliations to a complete yearly assessment of all your books of accounts& records.
How can we help?
Spicer-Pegler works with companies large or small alike, where our experts are keen to design internal audit functions from conducting a comprehensive risk assessment across the organization, to communicating results to management and other stakeholders. Where our experts not only identify problems but also work on setting appropriate controls to make corporate managements able to face current and future challenges.