Auditing has become necessary in many businesses and industries. Performing financial audits is essential to run a business that is fair, legitimate, and resourceful. Business owners need to save money, stop wasting their resources, and remain compliant with numerous business laws. They are highly recommended to invest in regular financial auditing.
Accuracy
The main purpose of a financial audit is to detect errors in financial statements and reports that affect a company’s finances. These records must accurately portray the company’s performance. Accuracy is necessary for an owner to file taxes, pay bills, save money, make investments, and perform other financial activities correctly.
Auditing helps to prevent misspending and reduce the inefficient use of a company’s resources. For example, a single error on a balance sheet could result in the incorrect reporting of a company’s assets, liabilities, or equity. The company could misrepresent to the public that they earn more money than they do or they owe more money. When these mistakes are revealed, the company may appear to be deceptive or unreliable.
Fraud
The second purpose of financial auditing is to detect, prevent and mitigate fraudulent activities that could lead to civil lawsuits or criminal investigations. During a fraud investigation, the results of an audit are used by law enforcement and government officials. A post-investigation fraud audit may be conducted to provide suggestions on how to prevent fraud in the future.
Internal Audits
Workers perform internal auditing within the company or organization. The work is done to identify internal problems with various systems and activities. Audits may be planned or random and carried out by members of a risk management team. Most audits focus on problematic areas, such as departments or methods, that are known to contain errors.
External Audits
External auditing is performed by third-party organizations that include certified accountants, government officials, or other qualified experts. The goals include a broader range of topics, such as governance, risk management, and compliance with state and federal laws.
Every business owner understands the importance of having a financially sound business. To become efficient, the workers must perform financial audits to verify the accuracy and legitimacy of financial reports. Auditing is how countless professionals identify the early signs of fraud, identify risks and prevent the business from facing a financial disaster.