Your business is your livelihood and for that, you need to know how to perform a basic accounting audit. Accounting or financial auditing helps you to know the current financial position of your company. As a business owner, you should have knowledge about how the audit is performed. This will not only help you in realizing the profit or loss you are making but also spot any thefts or frauds taking place in your organization. Also, it helps you to plan whether you have sufficient finances to expand your business or not. If you have never carried out a financial audit before, then you have come to the right place. To help you perform a basic accounting audit, continue reading this article.
Documentation of Financial Records
Make sure you have maintained all the financial records for the current year. This includes all books of accounting, vouchers, etc. These receipts and books are important so as to avoid any errors while recording the transaction amount.
Storage of Records
If you have an accountant performing an internal audit, make sure you go through the record keeping policies of the company so that you know what to keep in mind while auditing. Also, keep both physical and digital record of the books in case they are lost. Moreover, your archived folders should be easily accessible. If you have a small business you should make sure you have an electronic photocopy of canceled check , cash register tapes, and invoices.
Systematic Study of Records
Go through the books of accounts or arrange a meeting with your accountants and dedicate a few hours to review your records. This will help you get a better idea of your financial records and identify any errors or frauds. Ensure you review each element of your company’s accounting system including your journal entries and individual T-accounts. At times, business owners may make the mistake mixing up personal and business funds. Reviewing your records will help to spot these mistakes and ensure there are no mismatch between your earnings and expenses.
Company Internal Control Policies
Internal control policies are basically for knowing who is given what role in the company, who is given the responsibility to handle cash or check, etc. Having an internal control policy will help you to achieve organizational effectiveness and efficiency. It is a check done to catch any fraud or theft in the company.
Compare Internal and External Transaction Records
Always compare the company records with the records of sales, purchases, hire purchase or lease records to make sure everything is tallying and there are no mistakes. In case, you do not have records of any transactions, then ask your creditors or debtors to provide you the details for the same.
Compare Internal and External Tax Records
Taxation records are critical. Hence, compare the company’s tax liabilities and the taxes paid in the company’s accounting records against the company’s tax receipts.The deductions claimed on tax returns should be carefully studied to check for any inflated expense numbers. To be on the safer side, tax record should be kept for at least seven years.
An auditor knows what is best for your company after he studies your books of accounts. Conducting an internal audit is not easy and requires a lot of concentration and hard work. You should be sure that you follow the correct methods and get the right result. However, it is best advised to consult and accounting professional in case you want to avoid any errors or manipulations in your books of account.