An accounting audit is a process of examining a company's financial position. It also places emphasis on ensuring compliance with relevant reporting standards, cash handling policies, and internal controls. Accounting audit is an effective way to understand the financial health of a company. It also plays a vital role in creating and maintaining investor’s confidence and unlocking the valuable insights of business. Here’s how you perform a basic accounting audit.
Determine the Accounting Audit Trail
An accounting audit trail consists of electronic sources and hard copies that document the history of a firm’s transactions. They are chronological records of financial transactions that are used to trace financial data of a business. Check if your existing financial practices can allow you to track the entire process of financial transaction with documentation. You can also employ accounting software that electronically tracks your accounting trail for your business.
List Down all the Financial Transactions
Gather all your financial documents like invoices, receipts, and bank statements and hand it over to either your accountant or the accounting department of your firm. These documents should be forwarded so that all the records of the company are updated in the books of account. If this process is slow, the accounting records will suffer and become unreliable. Hence, make sure that your books of account are updated accordingly.
Compare the company’s stored external records and the selected transaction with the internal records. This will help you identify if there are any manipulation or mistakes between the two records. You can then refer to your financial documents and make the necessary changes accordingly.
Create a System for Internal Controls
Internal control systems protect your business from theft, fraud, and other internal accounting issues. Therefore, create a system effectively for your internal controls to ensure that all your data is protected. Install a camera in the corridors of your company to monitor the execution of internal controls. Invest in safes that can be locked when not in use. Protect your computer and the software with the help of a password.
Analyze your Tax Returns
Maintain your tax records for at least a period of seven years. Compare these records with the previous years. Review the range of credits and deductions claimed on the recent tax returns and look for areas of dubious reporting. The best way to analyze your tax return is with the help of an accountant who is well-versed with the taxes services in your province.
Follow the Accounting and Tax Laws
Preparing your accounting records in compliance with the laws will make a potential federal revenue audit easier to comply with. By following the accounting and tax laws, you will be able to respond to the external audits as well as other external parties. To find out what laws are relevant for your business, consult an accountant for a better and clear understanding of these laws.
Hire the Right Audit Firm
Conducting financial audit can be a tiring and a time-consuming task. You can decide to hire a professional firm to conduct an audit of your financial statements. A professional firm not only understands the industry thoroughly but also has years of experience in auditing. While hiring the right firm, consider key factors like their professionalism, the company’s objectives, their approach toward auditing and their cost. Choose a firm that is able to explain you every detail properly and make you understand what changes need to be done.
At the end of the day, an audit is a necessary part of every business. For more information on conducting a financial audit, consult a professional accounting firm to help you out.