Auditing is assessing a business’s financial statements to ensure that it maintains accounts reasonably. A licensed auditor not related to the business is authorised to conduct audits. An auditor inspects the company’s financial health by verifying all aspects of its financials.
What is a successful financial audit?
Assessment of internal controls, accounting practices and other financial details of the business is termed a financial audit. A financial audit is to ensure that the business complies with regulatory policies and standards. This eliminates any potential for fraud.
There are two types of audits to assess a company’s financial health
Internal audits can be conducted by an auditing firm or the company’s management. It considers sustainability practices, business growth, reputation and culture of the company. Insights drawn from the results are used to improve the business.
It includes evaluating the company’s financial statements to ensure it meets the accounting laws of the land. The results of auditing are published to the stakeholders of the company.
Six steps to a successful financial audit for businesses
1. Planning for the audit
Planning is the first and most crucial step in the guide to a successful audit. Extensive planning makes way for the organised execution of a successful financial audit. Record all the issues the business faced in the past audits. Eliminate those mistakes in the current financial statements.
Prepare all the schedules and reconciliations regularly. Make sure that all the standard practices and policies are followed. Any miss will mean redoing the statements. You wouldn’t want that, do you?
2. Stay updated on the changes in accounting
Stay abreast of the updates rolled out by the country’s financial authorities. You can keep a tab of it by following authoritative sources on the internet. Alternatively, you can also reach out to your auditor once a month. Your auditing firm will let you know if any changes are to be implemented in your accounting practices.
Reviewing the changes periodically and adhering to them will reduce the burden at the year-end. Any changes in your business, such as removing a product line or adding a new product line, should be considered. Based on the nature of the products, etc., your auditing firm will let you know if any accounting changes must be implemented.
3. Organise the paperwork
You know that your business has to retain physical copies of the bills and other financials. Organising the documents is the next step. Categorise the documents based on transaction cycles and into categories.
Group it into –
· Fixed assets
Once you have it sorted, save it in a secure location. Use premium accounting software that is reputed to be secure and has all the required features. Store soft copies of your documents in password-protected software. Restrict access to the documents only to selected few people and keep it that way.
4. Review it yourself
Review your organisation’s financial statements. Sit with the critical accounting professionals in your business and review the financials. This must be a monthly activity. Clarify doubts, correct the errors and get the missing information in place. Please do not hold it back for the next time.
Letting you in on a little secret. Prepare a checklist of the details that have to be disclosed. Then, cross-verify if that information is disclosed in your records.
Though you have hired an auditing firm to take care of your accounts, they are your responsibility. After all, it is your organisation.
5. Prepare for audit day
Your accounting and finance team must be present on the audit day. This is even when you have all the financials ready to present to your auditing firm. The auditing team might require an explanation or any additional/supportive information. Your internal team will be required to support the fieldwork.
Several businesses miss this crucial step in the guide to a successful audit. Don’t be that one.
6. Evaluate the results
After completing fieldwork at your organisation, stay in close contact with your auditor. This will make it easy for your auditing team to discuss open items. Information disclosure is required for open items. Timely discussions can speed up the preparation of an audit report.
Sometimes, the auditor might require meeting your accounting team, finance team, or directors after the fieldwork. Organise such meetings on priority.
A company’s financial health is evaluated through auditing. It is one of the most essential activities a company has to engage in. Following the six steps of Diligen mentioned above will make the process easy and make way for a successful financial audit.