Back to Blog
Accounting is a comprehensive process that requires you to maintain a proper track record of all the financial transactions that take place in your business. This process is undertaken in order to keep a track of the profits made by the business, to decide what future financial decisions have to be made and to comply with the tax laws. Since this process of record keeping has multiple transactions, mistakes tend to happen. Some mistakes can be costly and you may even end up paying the wrong amount of tax. Therefore, to avoid such discrepancies, a financial audit is created.
Types of Financial Audit
A financial audit can be defined as the process of analyzing your bookkeeping records to verify if the information provided is valid with regards to the statutory compliance. This process is conducted by professionals and is thoroughly done to find any minute mismatch in the bookkeeping. Before you move on to understand more about the purpose of conducting a financial audit, let us understand the different types of the financial audit that exist in Canada.
1. Statutory Audit
A statutory audit is conducted for a business by an external auditor. A statutory audit is mandatory under the law for a company that earns a certain revenue. The need for a statutory audit is mainly in large firms where the ownership of the company and the financial affairs handling is separate. A statutory audit confirms if proper regulations are being followed not only for the government but also to the higher authorities within the company.
2. Operational Audit
An operational audit is also known as an internal audit. It is an initiative taken by the business itself to monitor if their financial records are proper and compliant. This audit is conducted by the employees of the company. The auditor is decided by the board of directors.
3. Public Sector Audit
Public sector audit, as the name suggests, is an audit that is specifically conducted for business and institutes that are owned by the government. This audit is conducted by the auditor general to ensure that these public companies are following a proper financial affair.
4. Forensic Audit
Forensic audits are external audits with legal implications. These audits are conducted by the legal authorities when a business is supposedly indulging malpractices. Situations that generally cause a forensic audit include money laundering, tax evasion, insurance claim fraud, accounting negligence such as entering incorrect entries, etc.
Types of Auditors
Since an audit is an in-depth analysis of your financial statements, it is essential that an expert performs the task. There are three types of auditors you will come across when performing an audit.
1. Internal Auditor
An internal auditor is an experienced accountant assigned from within the company to perform the task of analyzing the financial records internally from time to time. Internal audits help a business to ensure that their financial records are updated and error-free.
2. Independent Auditor
An independent auditor is also known as an external auditor. These are professionals who only work as auditors for different organizations. They conduct the financial audit for different clients with an unbiased opinion.
3. Government Auditor
Government auditors are of two types, a general government auditor and a forensic auditor. A general government auditor performs an external audit for businesses to identify if the company is following all the tax regulations. Forensic auditor, on the other hand, performs an external audit in order to identify if the company is involved in any financial malpractice.
Purpose of Financial Audits
1. Identification of Miscalculation
A company has several transactions to record every day. Your accountant may take care of making a note of every single transaction. However, there are times when you may miss out on a receipt and end up not adding the record to your transaction list at all. When such miscalculation takes place, the business does not get a clear idea of the profit or loss it is making. With the help of a financial audit, such mistakes are caught and rectified.
2. Prevention of Fraudulent Practices
A business owner never handles their own books of accounts. Either the in-house team of accountants manages it, or an accounting agency to whom the process of accounting has been outsourced. Since the owner does not record every transaction that takes place in the business, there are chances that the owner may get fooled by the person handling the accounts. In the end, if a fraud is committed, the business owner will be penalized. To avoid such situations from happening, internal financial audits are conducted at least once a year.
3. Realization of Company’s Worth
There is a huge difference between a financial audit and general bookkeeping. In bookkeeping, you record the monetary transactions that take place in your business. A financial audit, on the other hand, does the complete analysis of your existing records. Regular recording of transactions does not give you significant information about your business. A financial audit gives you details of how your business is performing, and the report generated works as a good credit rating for your prospective investors.
4. Compliance of Taxes
A financial audit is done with the idea to catch discrepancies that were not noticed the first time. One major discrepancy that businesses can end up making is not complying with the tax rules unknowingly. You may miss out on something forgetfully, but the CRA won’t consider it to be a small mistake. So having a financial audit helps you to double check if you have filed your taxes properly. Sometimes, it also helps you to claim some tax deductions you may have not noticed before.
Financial audits do the job of rectifying some serious mistakes. Not conducting an audit could be the reason why you will end up being flagged by the CRA for the wrong reasons. So do not wait for a notice from the CRA for an audit and take the assistance of an experienced accountant for error-free bookkeeping process.
Back to Blog
A business has different seasons just like summer and winter. There is a season when the sales are high, and the profit figures reach its peak. Then there is a season when the business is just doing well enough to break-even. But the one major season that every businessman gets stressed about is the tax filing season. In Canada, businesses have to be prepared with their tax calculations and file them by 30th of April. But planning for your taxes starts months before the actual tax filing season starts. In fact, the reason why you need to save all your documents pertaining to your financial transaction is for filing your taxes appropriately.
A common reason why many businesses fret the tax filing season is that they decide to do tax accounting without the help of a tax accountant. Even if some businesses do hire a tax accountant, they end up hiring an incompetent one that only increases their worry. So for the next tax filing season do not spend half your time worrying about the taxes and find a good tax accountant.
Types of Tax Professionals
Before you start your search to find a good tax accountant, it is essential that you understand the different types of tax professionals who can help you with your business tax filing process.
1. Enrolled Agents
Enrolled agents are people having a fair knowledge about tax filing. These enrolled agents need to pass a set of examination before they can start consulting businesses and people about the taxation process. Enrolled agents do a decent job of handling the taxes. However, these agents have their limitations. An enrolled agent may be able to represent their client during a CRA audit, but they cannot prepare the audit reports.
2. Tax Preparers
Tax preparers are unofficial consultants who assist individuals and businesses with their taxes. These tax preparers are people who have a fair knowledge about taxation, who use it for the limited period of taxation season by helping businesses. They charge a very minimal fee, which makes them a cost-effective choice for some small businesses. Since tax preparers are not officially recognized consultants, they cannot represent you during a CRA audit.
3. Certified Public Accountant
A certified public accountant is an accountant who has done an extensive study in the field of accounting and is a certified accountant that is recognized by the CRA. A certified public accountant provided comprehensive accounting services including tax planning. A CPA can not only help you in your complete tax planning and filing but also represent you during CRA audit and prepare audit reports.
4. Tax Attorneys
Tax attorneys are lawyers who also manage taxes and tax-related cases. These professionals may help their clients in preparing tax returns, but they cannot perform audits. However, tax attorneys have the authorization to represent their clients for both audits and tax-related court hearings.
5. Accounting Faculty
A college professor who has himself acquired a degree in accounting and now teaches accounts instead of practice accounting may also consult people on taxes. They may help people prepare their taxes and can also represent individuals for their tax audits. Accounting faculty may help you with your taxes for a nominal fee.
6. Certified Financial Planner
A certified financial planner can only help their clients in tax planning. They cannot take care of audits for their clients.
How to find Tax Accountants
Though you have various options when it comes to hiring a tax consulting professional, choosing a certified accountant is always advisable as they have the appropriate knowledge to help you with your tax filing. But the question is where can you find good tax accountants? Well, here are some places where you can start your search from:
1. Online Directories
The very first and the most hassle-free method of finding accountants is by looking up online. Google search can find you anything, including tax accountants near you. The very first directory to check is the Google My Business suggestions made by the search engine. You should also check out other local directories such as Yelp. These directories not only help you with the contact details of tax accountants but also user reviews of how their service is. This will help you in making the right choice of selecting a tax consultant for your business.
2. Personal Connections
People you know may help you find a good accountant. You should ask your friends, colleagues and other people in your network for recommendations of good tax accountants they have worked with. They will give you a complete feedback of how their experience was and what problems they experienced when they worked with the tax accountant.
3. Government Accounting References
A certified accounting firm that follows the proper practice of accounting will be enlisted with the government accounting referral website. So if you want to find an accounting firm to take care of your taxes who follow proper regulations, you can search on the CPA Canada website.
Things to Check When Hiring
When you shortlist a handful of tax accountants to choose from, there are a few parameters to check before you decide whom you want to hire. These include: