Audit

How to perform an audit

Audit

Generally speaking, an audit is not something to be feared. By definition, it only means the evaluation of something, whether it's a person, organization, operation or plan. An audit may include analyzing a business' potential for success before it's ever launched, but in many cases it refers to a financial audit of an existing person or company.

This accounting term most often implies the search of a person's or company's financial records to ensure they are being both honest and accurate in reporting their profits and losses to a government's revenue agency. It's meant to be an unbiased assessment of the financial records of a business.

Audits are sometimes performed internally by a company's own employees, but they can be most intimidating when done by an external party representing a government revenue agency. Internal audits, if done properly, can prevent IRS audits down the road.

Starting an Audit

The first thing a company will want to do in an audit situation is examine its own accounting standards and policies. Are there any vagaries or contradictions that may alert a future external auditor? If so, have a committee, in consultation with an attorney, review these policies. Then perform an inventory of company resources, such as computers, printers and other office equipment and supplies.

Consult a tax audits expert, like a tax attorney, to determine what standards they use for performing an external audit. Use this as a foundation for examining internal records, and be thorough—a government revenue agency representative will not be forgiving, so don't let internal reviewers act this way, either.

Completing an Audit

Look over the volume of transactions as well as the types of transactions made by the accounting department. Are records consistent from month to month, or do they vary widely? Will documentation show why there were variations?

When finished examining these records and processes, compile an internal audit report for a management and accounting team, to show how standards can be improved in the future. Use audit software to help review the audit information. Discuss these audit findings and the proposed changes with a tax attorney.

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