There are many different types of audits. You could have an audit for any number of reasons. The term audit itself is "charged." It doesn't have the greatest connotations. But, instead of viewing it with fear at worst and drudgery at best, you should see it as peace of mind. Partnering with professionals experienced at conducting audits helps you to remain in compliance with regulations and avoid associated penalties. Audits also help you obtain considerable insight into your business's financial position, which is critical to strategy development and staying ahead of your competition. Additionally, certain types of audits allow you to pinpoint and address weaknesses that can threaten your brand's reputation and the profitability of your company.
Notably, the best auditors are not just auditors. They are constantly on the lookout for ways to improve your operations. O’Donnell, Ficenec, Wills & Ferdig are advisors as well as auditors. We live up to our “more than accounting” tagline to boost the health of your business.
Common audits
Financial statements represent one of the first things people think of when they hear “audit.” At the end of the year, the CPA performs audit procedures to provide reasonable assurance that the financial statement fairly and accurately represents your business’s activities and position.
Another audit that you would require is for compliance; for instance, a specific policy or procedure must be set up to reflect a particular function. Some standards need to be met. And this audit assures that you are complying with those standards. Notably, these responsibilities pertain to governmental regulations that are relevant to your company's activities.
Internal controls differ from compliance audits because your auditor is ensuring that you are in adherence to a policy in place more for internal purposes. This could be an opportunity to identify operational weaknesses and blindspots. For instance, one control might relate to the segregation of duties, making sure that the person receiving is different than the person posting, and so on. You're essentially making sure that all of those controls are effectively in place. If you lack controls, you're likely going to have significant operational deficiencies, which could sow doubt into the financial statement.
As an offshoot of internal controls, anything related to Information Technology will also be under review. Auditors are looking through the lens of rules as well as weaknesses within systems. And it's one thing to have manual control in place; it's another if the IT system fails. Each presents an entirely different set of risks; for instance, one's data may be vulnerable to breaches.
Financial statement audits
An independent audit of one's financial statements ensures that management presents data "free from material errors." There are additional benefits. When you need to receive a loan or finance a piece of equipment or other investment, financially-sound and independent audits completed by qualified professionals like OFWF tell banks, suppliers, vendors, and investors that you're "creditworthy." Numbers also inform and empower leaders to make sound decisions. If material, substantial errors are found, the CPA partner's corrective measure recommendations comply with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). The main statements that are audited include:
· Income – performance during the fiscal year, from revenue and expenses to net profit or loss
· Balance sheet – the cumulative value of assets, liabilities, and equity
· Cash Flow – cash inflows and outflows that provide insight into one’s capacity to satisfy short-term obligations as well as longer-term viability
An audit opinion letter is then issued that confirms the statements provide a fair representation of your business's financial performance and position if no material errors are found that could warrant GAAP/IFRS recommendations.
Compliance
Your CPA will perform an audit to assure compliance with requirements established by governmental entities or other entities, such as institutions of higher learning. The audit is performed under Generally Accepted Auditing Standards (GAAS) and different standards for financial audits. Compliance can very much be a full-time job for an internal staff member because the first step is understanding "scope" – what programs and associated requirements must you comply with? From there, effective controls must be established and maintained to assure appropriate programs support compliance requirements. Ongoing evaluation and maintenance are "musts" and, where needed, corrective action must also be identified and taken to address instances of noncompliance. Risks vary considerably from organization to organization and industry to industry, and policies and procedures will be developed based on your unique vulnerabilities.
Internal controls
Audits that fall under this umbrella related to policies and procedures that ensure financial reports and other relevant functions such as bank reconciliations and inventory are reliable. An outside partner identifies and assesses the risk of material errors or misstatements, which could be red flags for fraud. Internal controls generally include the broader "environment," or management's attitudes and awareness related to these policies and procedures. Leadership sets the tone. The idea is that if there is a healthy approach to controls at the top, it will trickle down through the rest of the organization.
Risk assessment is another facet of controls-related audits. Onboarding new personnel, for instance, is a risk. Are these team members being trained properly? The specific activities within controls must also be identified and examined. The segregation mentioned above of duties is an example of a specific procedure. This internal control helps your business avoid potential challenges, including fraud.
A vivid example of this is minimizing the risk of employees stealing products or inventory by having a specific group of people counts inventory, and another group designated to the ledger records. Monitoring further refers to ongoing, routine assessments of these internal controls. In this manner, areas for improvement or modification are identified, and corrective action is taken.
We mentioned IT earlier as an offshoot of internal controls. This system component also generally refers to communication – how your business gathers, stores, reports, and transmits transactions and other information. This is where firms like OFWF shine; we can identify areas that can lead to real improvements and results (heightened efficiency, greater profitability). For instance, we may find that current software doesn't deliver the performance or quality that you require within this type of control. If you invested in such software because it was more affordable than other products, it might be costing you more over the long haul. We recommend systems that provide excellent value. Our QuickBooks ProAdvisor can help properly onboard you and your staff and provide guidance whenever questions or challenges arise.
As part of this process, controls are "tested," which could include management and employee queries, examining source documents, surveying inventory counts, and performing the client procedures under the microscope. More substantive processes are designed to identify overall risks.
If ever there was a time that you wanted to get your financial books in order or to manage those risks that can be controlled in a highly unpredictable environment, it would be now.