The ill-conceived notion that audits are exclusive for large businesses and multinationals is far from the truth. Even small businesses could do audits every once in a while. A small business audit will tell you volumes about your bookkeeping process and whether your business’s compliance.
In some cases, small businesses require audits to qualify for financing from lenders. An audit on your business accounts also lets you know whether there are any discrepancies in your financial records. You can get a local CPA to conduct your audit, or you can do it yourself.
If you’re conducting an internal audit, it’s important to get it right so everything checks out in the end. Today, we’ll be looking at how you can audit your business accounts in a few simple steps.
Understand What a Financial Audit Is
The first step in conducting an audit is understanding what it is. Simply put, an audit or an internal audit is a comprehensive look at a company’s accounts and financial information. It confirms the accuracy, legitimacy, and timeliness of the said information.
An audit also helps the IRS know your company’s financial situation and whether your tax deductions add up. That said, financial audits break down into two types:
Formal Audits: formal audits are external inspections of financial statements and other records. These audits are usually carried out by a certified public accountant or business accounting firm. The IRS conducts small business audits because small businesses may not have the capability to do so.
Self Audits: Self-audits are internal audits that businesses conduct on themselves. They help business owners gain insights into their business’s financial processes and cash flow. These audits protect you from IRS audits and help identify and eliminate inefficient processes in your business.
Once you understand what a financial audit is and why it’s so important, you can move to the next step.
Establish Your Accounting Audit Trail
An accounting audit trail is a collection of physical and digital records of a company’s financial transactions. An audit trail connects figures on your ledger or financial statements to the source of the transaction. A proper audit trail will give detailed information about transactions from the onset to their completion.
As per Maodong Xu, establishing your audit trail requires a comprehensive look into your current financial processes. Determine whether your current processes capture all the necessary transaction information needed for an audit. Ensure you streamline your accounting audit trail to make auditing much easier and 100% accurate.
Check the Movement of Financial Records to Accounting Staff
Employees in the accounting department are at the core of your auditing process. As such, it’s important to determine how documents and information flow to your accounting staff. Some of these financial documents include receipts, invoices, bank statements, and the likes.
How do these documents get to your accounting staff? Do they get to the concerned parties in good time? Is the integrity of financial information maintained throughout the document transfer process?
Go Through the Business and Tax Laws You Must Follow
It’s important that your auditing process is in line with the laws and regulations that local authorities stipulate. The law requires you to keep accurate records of your accounting information for tax reasons. Make sure your accounting records are fully compliant with all laws for a smoother auditing process.
Consult with top bookkeepers or any other accounting professional to know what accounting laws you must follow. You can also check the Small Business Administration Website for laws that may apply to your business.
Learn and Implement Agreed-Upon Audit Practices
For you to have a real internal audit, you need to adhere to industry-accepted standards. Some of these standards include the General Accepted Auditing Standards or GAAS. GAAS is the most common standard adopted by small businesses and private companies.
Liaise with your tax attorney and an accounting firm to establish proper GAAS policies in your auditing process. You don’t have to know everything about GAAS policies and practices. You should be quite okay with the basic principles and guidelines.
Examine Your Accounting System Diligently
Examine all aspects of your current accounting system to check for any discrepancies. Start with where you input accounting information, starting from ledgers and journals. Check your account balance regularly so you can address any inconsistencies immediately.
Refer to relevant documentation to find out income and expenditure. Accounting software really comes in handy during this step.
Compare Your Internal Records With External Ones
The next step is to check whether your internal financial records correspond to external records. Examine purchase receipts from vendors and compare them with your expenditure records. Check for any errors and correct them as soon as you can.
Most errors in this step are mostly from the suppliers’ end. If you find any errors, ensure to contact the external parties to iron out the matter. It’s also a good idea to keep track of any errors and document them to avoid repeating the same mistakes.
Compare Your Tax Returns With Tax Records
It’s very crucial to be in good books with the IRS. Unfortunately, most businesses are aware that their tax records don’t correspond with their returns. It’s important to keep all your tax receipts and compare them with your tax records before completing your audit.
Compile and Audit Report
The final step entails compiling an audit report from all the financial information you gathered in the previous steps. The report should capture any relevant information and findings during the audit. It should also uncover any issues with your financial processes and recommend ways to rectify them.
If you fail to compile a proper audit and trigger an IRS audit, it’s not the end of the line. You can click on this link https://silvertaxgroup.com/request-an-irs-audit-reconsideration/ to learn how to initiate an IRS audit reconsideration.
Audit Your Business Accounts Today
Small business owners should prioritize auditing their business accounts to improve their businesses. If you can’t do this by yourself, you can get the best accounting firm in your area to help you out.
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