An official audit is a documented explanation of whether or not a company’s financial statements are materially accurate, along with the standards, assumptions, and evidence used to conduct an audit. Suppose the IRS audits your business tax return. In that case, the platform carefully examines whether your business included the total income or applied only the tax deductions and credits allowed by the law.
The IRS audits are not random but a planned procedure. IRS selects such tax returns with errors based on complicated criteria. After filing a tax return, the IRS has three years to begin and finish an audit. However, these officials are professionals, so they consume less time than expected to complete the process.
During this time, the IRS will require financial information and documents explaining the position of your business tax return. So, providing them with the correct details is your responsibility.
Internal and External Audits
As an entrepreneur, acknowledging the differences between internal and external audits is paramount. This is because both the audits serve different purposes.
A CPA consultant has to perform an external audit, and it is only responsible for the auditing process and doesn’t involve taxation matters. However, many consider them to be a more reliable platform than others.
On the contrary, the employed accountants or bookkeepers double as internal auditors. They might perform the same activities as the external ones but also handle minor financial tasks. In some cases, the external auditors rely on the internal ones to manage monetary functions.
For a sound auditing procedure, you must take every step attentively. Here’s a step-by-step guide for managing your firm’s finances, ultimately leading to a smooth auditing procedure.
Step 1: Strategizing
For the successful execution of an audit procedure, creating a strategy would be the most feasible option. The planning phase might include scheduling and group meetings with your audit officials. In most cases, the department manager must provide all the necessary information.
Step 2: Reviewing procedure
Next, the assigned internal auditors will review your generated policies and financial management/ the purpose of this activity is to ensure that your written strategies perfectly align with your company’s standards. To avoid any inconvenience, you have to identify the departments ignoring the imposed policies made by the organization.
Step 3: Fieldwork
During this period, the auditor physically visits your company to examine if you’re working legally or not. Your workforce must follow the rules and regulations to pass this audit. If any employee alters roles within the platform, you must adjust immediately. Fieldwork includes meeting with the management and employees and enquiring them about the regular activities and tasks.
Step 4: Follow up
During the report inspection, the auditor often finds missing information. For instance, if any notice gets misplaced, the officer will ask for it immediately.
If an employee fails to provide an authentic justification, he must clarify it in the board meeting. However, most auditors explain the situation before submitting the findings.
Step 5: Reporting
Once your auditor examines all the provided information and completes the review process, he will issue a draft report, which delivers audit results.
The reports include an independent evaluation of your company’s strengths while stating the weaknesses and recommendations for corrective execution. The internal auditor will make sure that the information has no additional issues. After reviewing, the auditor proceeds with the final report.
Step 6: Looking for errors
If you find any hidden issues within the report, you need to track the source immediately and implement accurate internal controls to alleviate the problem with written documentation. It appears to be a simple process. So why do companies find it hard to make audits a priority? This is because an audit is a highly time-consuming process, which makes it a draining procedure.
The demands of managing a business can be pretty overwhelming, and it might not be easy to prioritize among tons of tasks. Hiring an accountant to review your finances is a significant decision. Undoubtedly, auditing is an exhausting procedure and consumes valuable time and cash, but the benefits of this process outshine everything.
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