When we think ‘Audit’ we often have visions of an aggressive external examination of our books, in order to catch the smallest error in our tax returns. But an audit does not need to be a stressful event-in theory an audit is simply a quality control measure to ensure the accuracy of your financial records. In fact, many businesses conduct internal self-audits every year to ensure the accuracy of their books. External audits might be required if you’re applying for certain business certifications or programs, or are getting ready for a merger or acquisition. This feedback is important for stakeholders, including shareholders, lenders, and regulatory authorities, who use the financial statements to make informed decisions.
In general, though, audits are in place to provide assurance that your financial records and tax returns are accurate, complete, and in compliance with accounting standards and relevant regulations.
What exactly is an audit?
The term audit usually refers to a financial statement audit. A financial audit is an objective examination and evaluation of the financial statements of an organization to make sure that the financial records are a fair and accurate representation of the transactions they claim to represent. Using checklists and conducting interviews, auditors determine whether a business has its affairs in order and under control, in accordance with relevant standards, requirements, and/or objectives. They then present their findings in an audit report. The audit can be conducted internally by employees of the organization or externally by an outside Certified Public Accountant (CPA) firm.
But why conduct audits?
The main purpose of an external audit is to validate a company’s financial statements and to provide independent assurance of the accuracy of financial reports.
These are the three most common reasons for conducting an audit:
- to reassure customers, suppliers, or even yourself of the accuracy and viability of your financial records
- to check the effectiveness of management financial safety measures
- to verify the reliability of accounting/reporting procedures
An external audit would be necessary in order to verify the reliability of your internal accounting procedures.
What are the 3 main types of audits?
There are three main types of audits: external audits, internal audits, and Internal Revenue Service (IRS) audits. External audits are commonly performed by Certified Public Accounting (CPA) firms and result in an auditor’s opinion which is included in the audit report.
- External audit: This type of audit is done by external firms that are qualified to do an audit.
- Internal audit: This is an audit done by the audit committee and boards of directors of the company itself, who are authorized for auditing.
- Forensic audit: This type of audit is done by a forensic accountant who has specific skills in the parameters of accounting and investigation.
Each type of audit has specific requirements, and there are three types of auditors involved.
- External auditor: an auditor who holds the licence of CPA and is responsible for performing the statutory audit of the company and gives an unbiased report.
- Internal auditor: An auditor that is employed by the company being audited.
- Forensic auditor: Forensic auditors are investigators of legal and financial documents that are hired to look into possible suspicions of fraudulent activity within a company; or are hired by a company that may just want to prevent fraudulent activities from occurring.
What to look out for when choosing an external auditing firm
Choosing the right external auditing firm is an important decision that can have a significant impact on your business’s financial health, reputation, and compliance with legal and regulatory requirements. Here’s what to look out for when shopping around for an external auditing firm:
1. Reputation and Experience
Look for an auditing firm with a good reputation and a solid track record. You may want to consider firms that have worked with organizations similar to yours, as they may have a better understanding of your industry’s unique challenges. When in doubt, ask to talk to previous clients.
2. Qualifications
Check the qualifications and credentials of the auditing firm’s staff, including their professional certifications, experience, and education – LinkedIn is great for this. Consider firms that have a team with a mix of skills and expertise, including accounting, finance, and legal knowledge.
3. Independence
Make sure the auditing firm is independent and objective, meaning that they do not have any conflicts of interest or relationships that could compromise their impartiality. They should have no financial or personal stake in the outcome of their audit, and should be willing and able to address any discrepancies that they may find. Trust between yourself and your auditors is of the utmost importance.
4. Communication and Reporting
Look for an auditing firm that communicates well and provides clear, concise, and actionable reports. They should be able to explain complex financial issues in terms that are easy to understand, and should be responsive to your questions and concerns.
5. Technology and Data Security
Consider auditing firms that have invested in the most up-to-date accounting software to improve the efficiency and accuracy of their work. They should also have strong data security protocols in place to protect your organization’s sensitive financial information. We always recommend cloud-based software, as it is automatically backed up and data is easy to access and share using secure protocols.
6. Cost
Finally, consider the cost of the auditing services and ensure they align with your budget and financial outlook. However, keep in mind that you get what you pay for! A low-cost audit may not provide the same level of quality and expertise as a higher-priced one, which can result in costly errors and legal issues down the line. It pays to invest in the future of your enterprise.
Overall, take the time to carefully evaluate each potential external auditing firm, and select the one that best meets your organization’s needs and expectations. If in doubt, reach out to experts who can guide and advise you.
Outsourced CFO
Getting through an external audit is a big project. It requires a large amount of finance team capacity to help prepare for, work on and finalize with your auditors. But getting last year’s audit over the line directly competes with the focus required for this year’s accounting and reporting priorities. This often leaves finance teams overwhelmed. At Outsourced CFO, our team of financial experts can enable your financial team to stretch their capacity in times of high demand, such as preparing financial statements for an audit. Access to flexible fractional CFO talent means that a team of other highly qualified finance professionals can help you meet deadlines and crush goals.
We love helping groups compile sets of financials at full IFRS or IFRS for SMEs level that will pass the standards of any top 10 audit firm. Further support on adjustments, audit queries and finalization of financial statements enable your team to stay focused on the current financial year’s mission, without being tied down by the previous one’s reporting requirements.
Getting in extra hands that understand the audit process and can help your team with preparation of audit packs, answering the multitudes of audit queries, and everything else required to get the audit over the line. Plug in OCFO’s accounting experts with audit backgrounds to help you and your team get this year’s audit done on time.
