A critical part of any business’s operations is being able to audit. Auditing is especially important because you need to be able to read your financial statements and have a clear idea of what is going on. Most people hire professionals to perform the audit, but some do it on their own. In any case, you need to understand the basics of an audit.
An audit is an examination of the financial reports/statements of a business. Typically the business will hire professional accountants to perform the audit. Also, an audit can be done internally by your employees or externally (the accountants).
As a business owner, you need to perform regular audits on your business. This will not only help you better understand your business’s financial standing but also help you when it’s time to apply for a loan.
With this article, we will look at the basics of an audit and all that it entails.
Types of Audits
There are many different types of audits that can be performed. Below is a list of the different types of audits.
Internal Audits
Internal audits are those that happen within your business. You can initiate the audit and someone else within your business can conduct it. An internal audit is a good idea especially if your business has shareholders or board members.
Additionally, an internal audit can help you check if you are still complying with laws and regulations.
External Audits
External audits are usually done by a third party, not someone within your business. It can be conducted by a professional accountant, the South African Revenue Services (SARS) or an auditing company. Much like an internal audit, the objective here is to ensure your company’s financial records are accurate and that it complies with all laws.
Once done, the auditor will provide you with an audit report. The report will contain details about the auditing process and what was found. The report will also tell you if everything is accurate and above board.
Tax Audits
In South Africa, SARS typically conducts tax audits. During the audit, SARS looks at your financial statements, accounting records and all supporting documents. This is done to ensure that you have declared your tax position correctly.
Financial Audits
This is one of the most common types of audit. In a financial audit, an auditor will analyse your financial statements to determine that they are fair and accurate. The auditor will review your business transactions, procedures and balances as part of the audit.
Once completed, the auditor will provide an audit opinion about your business to lenders, creditors and potential investors.
Operational Audits
Operational audits analyse your company’s goals, planning processes, procedures and operation results. They are usually done internally but you can hire a third party to perform the audit. The operational audit will help you see your company’s operations and how you can better them going forward.
These are just some of the main types of audits. Other less-known audits include information system audits, payroll audits, and pay audits.
Audits allow you to understand all the different aspects of your company. They can also help you catch any issues early on before they become any bigger.
Steps to Take When Conducting an Audit
The following steps can help you perform a basic internal audit of your business. Follow them carefully to stay in the know of what’s happening in your business.
Step 1: Plan the Audit
When you plan your audit, you need to decide on a number of things. Mainly:
- What areas of your business need to be audited.
- Who can conduct your audit.
- When you will start and end the audit.
If you want your audit to be as efficient as possible, you need to have a comprehensive plan on how you will conduct it. Deciding on what type of audit you want to do as well helps you plan better.
Step 2: Tell Your Employees About the Audit
Unless this audit is being done to detect suspicious activity, you need to let your employees know. After notifying your employees, ask all departments to get any documentation and info you might need, add the audit to the company calendar and share the audit schedule with all relevant parties.
Notify your employees in time, and give them a chance to prepare all the required documents while still doing their daily tasks.
Step 3: Begin Conducting the Audit
Now the fun part starts, you can begin with your audit. Remember to gather all the necessary information and documentation, review all your business processes and if necessary, interview your employees to learn more about their skill levels.
Step 4: Document Your Audit Findings and Report Them
During your audit, you need to take notes. Write down what you see and if your employees are following all company procedures. Once done with the audit, you can create an auditor’s report which will contain all the findings of your audit.
Once you have followed the auditing process, you can make the necessary changes to your company. These changes will be based on your audit findings and will positively impact your business. Also, any findings will ensure that you know that your business is still compliant with all relevant laws and regulations.
Don’t wait, start your own audit process today and reap the benefits of a comprehensive audit.
To speak to one of our experts, visit SME Advice for more information.
