An audit, a formal examination of a business’s financial statements, is often treated as a compliance formality, but a properly conducted one genuinely reveals whether the business’s financial position is accurately represented, which matters considerably beyond simply satisfying a requirement.
These are the fundamentals worth understanding about how a proper audit works.
What an audit actually examines
An audit examines a business’s financial statements and underlying records to verify they accurately and fairly represent the business’s actual financial position, rather than simply checking that documents exist.
This distinction matters because a business can have complete paperwork that still misrepresents its genuine financial health if the underlying figures aren’t accurate.
Internal versus external audits
An internal audit, conducted by the business’s own staff, helps identify problems proactively and improve internal controls, while an external audit, conducted by an independent professional accountant, provides the credible, independent verification that outside parties like funders or regulators typically require.
Both serve genuinely different purposes, and a business benefiting from stronger internal controls doesn’t eliminate the value of periodic external verification.
Why proper audits matter beyond compliance
Beyond satisfying a regulatory or funder requirement, a properly conducted audit genuinely helps identify inefficiencies, errors or even fraud within the business, insight that’s valuable regardless of whether an audit is formally required.
This makes a genuine, properly conducted audit worth treating as a valuable business discipline, not merely a box to tick.
Use registered professionals for external audits
An external audit should be conducted by an auditor registered with the Independent Regulatory Board for Auditors, to ensure the audit itself carries genuine, recognised credibility.
Our guide to financial management tools and habits covers building the ongoing financial discipline that makes any audit, internal or external, considerably smoother.
Frequently asked questions
Is an audit only a compliance formality?
No, a properly conducted one genuinely reveals whether the business’s financial position is accurately represented.
What is the difference between an internal and external audit?
Internal audits are conducted by the business’s own staff to improve controls; external audits provide independent, credible verification.
Does a business need an audit only when legally required?
No, a proper audit is valuable for identifying inefficiencies, errors or fraud regardless of whether it’s formally required.
Who should conduct an external audit?
An auditor registered with the Independent Regulatory Board for Auditors, to ensure the audit carries genuine, recognised credibility.
What does an audit actually verify?
That the financial statements and underlying records accurately and fairly represent the business’s actual financial position.
