Your Guide to a Successful Financial Audit
At the end of the year, you need to compile a certain number of reports that outline the details of your financial statements and any associated accounts. This allows for complete transparency to lenders, investors, and governmental agencies. While oftentimes financial audits are associated with negative connotations, they don’t have to cause you stress and anxiety. To help make sure you’re fully prepared, here’s your guide to a successful financial audit.
Understanding Financial Audits
A financial audit is the formal investigation of your business’ finances, including statements, documentation, processes, and accounting. It’s conducted by a third-party to check and make sure that all of your financial statements are accurate. A financial audit can also be ordered to determine the financial health of a company through a detailed examination of accounting, internal controls, and overarching financial details. It’s commonly used to make sure that all activities being done are legal and there are no instances of embezzling or embellishing for investor manipulation.
How to Conduct a Successful Financial Audit
There are both internal and external audits and if you’re scheduled for an external one there are a few things you can do to make sure that everything goes well. Here are 10 steps to conducting a successful financial audit.
1. Make a Plan
The first thing you’ll want to do is plan for your upcoming audit. Planning ahead of time allows you to better reduce the anxiety of getting everything done at once. It also allows you to devote time getting ready for the audit in addition to your regular work. This way, you won’t disrupt your day-to-day tasks and you’ll still be able to optimally engage with what’s going on. The best way to plan ahead is to treat preparation for an audit as a year-long process. Working with a professional throughout the year is a great way to make sure that you’re on the path for a successful audit.
2. Recall Past Mistakes
Most businesses will make a mistake at one point or another. If you struggled with past year audits, revisit them and try to see what went wrong. In doing so, you can help to improve the success of your current financial statements. Pay extra attention to areas where you’ve had problems before and try to make sure that the communication between your team is strong to avoid overlooking anything.
3. Understand Current Accounting Standards
Accounting standards are constantly changing. Whenever there’s new regulatory requirements, your audit can be affected. To make sure that you know what to expect and how to implement any new tax laws, it’s important to familiarize yourself with current accounting standards.
4. Assess Changes in Business Activities
The current accounting standards also change depending on your business activities. If you’ve made any changes or additions to how, where, and when you conduct business, make sure that you understand what this means for regulations. You may be required to report more or disclose new things if you’ve added revenue streams or re-organized your leadership structure.
5. Analyze Tax Records
Reviewing and analyzing your business’ tax records can help compare your current financial statements to any records of liabilities or taxes paid. This allows you to better understand areas of dubious reporting, such as inflated expense numbers, and therefore avoid making past mistakes. It will also help you get a better understanding of your business’ big picture. Since records should be kept for at least seven years, you’ll have plenty to refer to.
6. Assign Responsibilities
To make sure that your business is working together, put in some effort to create a timeline and then assign responsibilities. You should be able to delegate to make sure that you’re covering everything you need to. If you need to obtain certain papers, request the information from the applicable source within your organization. Start by completing tasks that are more difficult or complex and slowly work your way towards finalizing the simpler, more straightforward actions that need to be done. You should have drafts of everything available as soon as the audit begins, so try to stick to your timeline.
7. Organize Your Data
In addition to assigning responsibilities, make sure that you’re creating folders and subfolders that clearly organizes your data. This can help improve the success of your financial audit as it provides everything in one place for the auditor. Include any schedules and workpapers, financial statements, cash, receivables, revenue, expenses, payables, debt, fixed assets, sensitive information, and anything else that seems pertinent.
8. Get Clarification
During your preparation, if you’re ever unclear, take the time to get the proper clarifications. You want to make sure that you understand everything you need, and why you need it, to avoid any delays in processing or financial errors that would lead to a failed audit. The best way to ensure that you’re upholding the proper standards is to work with a professional CPA like the ones at Del Real Tax Group. We can help you gain control over your books and manage your finances so that you’re on the right track for a successful audit.
9. Perform a Self-Review
If you’re interested in seeing how you’ve done, perform an internal audit as a kind of self-review. This allows you to assess everything that you’ve put together and see where you stand prior to the external auditors arriving. While this should be done in a strictly legal manner, it does allow you to see if you have all of the necessary paperwork and required information ready and at-hand to make your external audit go as smoothly as possible. If you’re planning for a truly successful audit, be prepared to give an explanation of all of your statements and any variances that occur.
10. Evaluate Results
During the external audit, try and maintain communication with the auditors. You’ll want to ensure that your results are a clear representation of your business and if your auditor needs to attend meetings to better understand any discrepancies or variances then it’s good to make yourself available. After you’ve received results, evaluate them with your team during a post-audit closing meeting. This allows you to better understand how you did and where there’s still room for improvement. By evaluating your results right away, you’ll be better prepared to make changes that carry on into the next financial year.
Having a successful financial audit is essential if you want to continue to run your business. If you fail an audit, there may be penalties, consequences, and fines. The person conducting the audit may submit information to the IRS for inaccurate bookkeeping, which can lead to fines or even criminal penalties. To make sure that you’re keeping your financial statements and books in order, Del Real Tax can help. We created advanced tax strategies, help maintain monthly books, sales tax, and payroll, analyze businesses to maximize profit, and help our clients pay less in taxes every year. Del Real Tax Group wants you to feel at ease that your financial statements are accurate and reflect your current situation. Call us today at 708-788-0082 for an initial FREE tax discovery session, where we can learn more about your business and explain how we can help.
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