The word ‘audit’ has become an ominous one in many small business circles, especially newer businesses with less industry experience. Auditing is often conflated with fraudulent behavior and allegations of financial misconduct – but this isn’t the whole story. Auditing is simply a process and one which could help your business grow and succeed. Auditing takes many different forms – here are some of the most common, and how they can help your business.
Internal and External Audits
Any audit your business undertakes or is required to undertake will fall into one of two categories – internal or external. Here we will expand on the general meaning of these terms with regard to auditing, before looking at specific types of audits and how they can benefit your business.You can find all kinds of Audit templates at Template.net where you can find internal audit processes, financial risk assessment, timetable, format, checklist, strategic steps, and more.
Internal Audits
An internal audit is an audit carried out by management or employees within the company. Internal auditing processes might be used to further understand the efficacy of departments and processes or to root out fraudulent behavior within a specific area. For example, an accounts manager may have noticed discrepancies in your business’ expense float, and hence carried out an expenses audit to gain a clear picture of the situation and uncover the cause.
External Audits
External audits are audits carried out by organizations independent from a company. These may be independent auditors hired by the company, in order to provide an unbiased report on the state of things within the company; they may also be government-sanctioned audits by HMRC, in order to clarify your business’ tax situation.
Financial Audit
A financial audit is essentially an investigation of your business’s financial records and the processes with which they are managed and kept. A financial audit can be carried out by specialist chartered accountants, giving you a clear and unbiased picture of your business’s financial state. These kinds of audits have several aims: to ensure your business is accurately reporting revenue and expenditure, giving executives and shareholders a clearer picture of the business’ worth and growth patterns; to ensure tax law compliance ahead of year-end, and to uncover any wrongdoing or fraudulent behavior within the accounts department.
Tax Audit
A tax audit is an external audit, usually mandatory and carried out by HMRC to ascertain whether or not your business has been fulfilling its tax obligations. A tax audit is called by HMRC if the figures in your business’ tax returns are suspicious, or seem to require further investigation; you might have reported a loss the tax year before or after reporting significant profits, giving rise to the possibility of an improperly completed tax return.
Performance Audit
Not all audits are financial in nature. You can carry out an audit of any aspect of your business, to understand more about its operational state and any inefficiencies or discrepancies. You can refine the scope of your audit to different departments and processes, whether evaluating employee effectiveness, health, and safety compliance, or even office supply control, but here we will look at one holistic example of this practice – the performance audit.
A performance audit is a comprehensive, wide-reaching audit of the various systems that drive the business, with a view to discovering points of weakness and room for improvement. The scope of this audit allows it to cover anything and everything, and can be internal or external in nature. An internal audit might follow a downturn in profits, as management seek to find points of failure in the business, whereas an external auditing process might be called upon to find things an internal audit might not think to look for.