During financial audits, identification of mistakes related to books of accounts or financial reporting is quite common. Some mistakes can be due to carelessness, while some can be due to inadequate information. Irrespective of the reason, most mistakes can be corrected and controlled. Below are few most common mistakes identified during a financial audit that businesses usually make.
Maintaining Hard Copies Only
Many organizations either don’t understand the importance of digital age or simply refuse to use technology because they seem to be expensive. They end up recording all their financial transactions manually, maintaining several folders, and preserving them for decades. Searching for a single page or document during a financial audit can be difficult as the auditor or even the employees have to spend a long time checking every file and folder and search for what they are looking. This can be a huge time-consuming mistake. Hence, organizations should consider using software such as Quickbooks that can make recording the transactions and identifying them easier.
Mixing Personal and Business Expenses
It has been advised by uncountable financial experts that organizations should not mix-up their personal and business expenses. Confusing personal and business expenses mostly happens when one has a home office or is the sole proprietor. Mixing both the transactions only creates a confusion during a financial audit and while paying taxes. Hence, you must always keep both your transactions separate.
Improper record of transactions can affect your books of account. For example, any businesses aren’t aware that the pledges, donations, gifts, grants, etc. that they receive shouldn’t be accounted as “Cash and Income.” These receivables from donors in the form of cash or kind are supposed to be accounted for as “Receivables and Income.” Also, if you do not have a well-trained accountant or any incorrect record of transactions, then your entire accounting system can be affected. As a result, when an auditor goes your books of account, there are several errors which may be pointed. Hence, always ensure that you hire a professional to look at your accounts.
Incorrect Dates Recorded
Another mistake seen during a financial audit is the incorrect dates recorded in the books of account. Mistakes in the dates of transactions can occur when businesses don’t record their transactions at the time it takes place. They might not have correct receipts to verify the actual date. The finance department may often leave the job of recording until the last minute to save time. These mistakes also happen when the person responsible for it isn’t focused while recording. Incorrect mistakes can lead to confusions and major tax filing mistakes. The best way to avoid the date mistakes is to record the transactions as and when they take place.
We recommend you to analyze your cash flow and business transactions from time to time and make sure there aren’t any mistakes during the financial audit. For more such tips to avoid any accounting and recording mistakes, you can talk to our professional financial auditor. You can also give us a call for a detailed examination of compliance with the rules of accounting and tax reporting in your company.