Learn the essential steps to conduct a thorough internal audit, from gathering documentation and studying past audits to investigating discrepancies and evaluating your findings.
Every good business performs an internal audit to determine whether the accounting books match the actual financial state of the company. While it can be scary and downright unsettling, this comparison is essential if the company wishes to maintain a realistic view of itself in order to survive in the business world.
Here are the steps to conducting your internal audit:
- Assemble your accounting books and other documentation. An internal audit should cover the last five years of your company's operations, or the period since the last internal audit, whichever is more applicable. All books should be available for review and reference. Digital versions are advantageous for easier referencing, provided they accurately reflect the physical books. Obtain the latest comprehensive transaction history from the company bank and other financial institutions. Have your contact details ready in order to compare records with all your clients, stakeholders, and other institutions.
- Study the past audit. This will help you grasp the scope of the company's audit and provide ideas on the procedures to follow. You may follow the existing format established by past audits, modify it to accommodate new information and realities, or replace it altogether should the audit be found inadequate or defective. Be ready to contact the previous auditor in case you have questions or need clarification. Finally, you may want to update your auditing tools and practices so that better techniques can be integrated into your audit.
- Plan your audit strategy. Schedule the audit for the coming weeks and allot a timeframe for each activity. Designate key personnel for each task. Provide contingencies in case your audit encounters unexpected obstacles or findings.
- Perform an inventory of your stock. Physically counting all your wares will reveal imbalances and discrepancies. This should include equipment and supplies.
- Investigate the causes of discrepancies. Large discrepancies are a sure sign of incompetence or malfeasance within your company. Smaller anomalies may simply be correctable mistakes, but they can also point to a larger, systemic error. Be prepared to deal with severe fraud, embezzlement, or other criminal activities by gathering evidence and cooperating with law enforcement authorities or the district attorney’s office.
- Evaluate and respond to your findings. Note down positive findings and processes for future audits. Provide recommendations to correct current discrepancies and prevent their recurrence. Clearly label and store documents, provide both hard and soft copies, and inform the accounting staff of the location of these audit files. Schedule the next audit and leave notes, instructions, and reminders.
- Consider hiring an external professional. An impartial professional views your books strictly and objectively, and will not hesitate to call out faulty or improper practices or anomalies. The auditor must be given full access and cooperation at all levels to perform their task competently. If your company is already being viewed with suspicion, hiring a well-regarded professional can help remove all doubt.
A well-performed internal audit will help you anticipate any questions a tax audit might raise, should the time come. It will also reveal updated information that allows you to make informed decisions regarding the future of the company.
Conduct Your Internal Audit
Learn the essential steps to conduct a thorough internal audit, from gathering documentation and studying past audits to investigating discrepancies and evaluating your findings.
Every good business performs an internal audit to determine whether the accounting books match the actual financial state of the company. While it can be scary and downright unsettling, this comparison is essential if the company wishes to maintain a realistic view of itself in order to survive in the business world.
Here are the steps to conducting your internal audit:
- Assemble your accounting books and other documentation. An internal audit should cover the last five years of your company's operations, or the period since the last internal audit, whichever is more applicable. All books should be available for review and reference. Digital versions are advantageous for easier referencing, provided they accurately reflect the physical books. Obtain the latest comprehensive transaction history from the company bank and other financial institutions. Have your contact details ready in order to compare records with all your clients, stakeholders, and other institutions.
- Study the past audit. This will help you grasp the scope of the company's audit and provide ideas on the procedures to follow. You may follow the existing format established by past audits, modify it to accommodate new information and realities, or replace it altogether should the audit be found inadequate or defective. Be ready to contact the previous auditor in case you have questions or need clarification. Finally, you may want to update your auditing tools and practices so that better techniques can be integrated into your audit.
- Plan your audit strategy. Schedule the audit for the coming weeks and allot a timeframe for each activity. Designate key personnel for each task. Provide contingencies in case your audit encounters unexpected obstacles or findings.
- Perform an inventory of your stock. Physically counting all your wares will reveal imbalances and discrepancies. This should include equipment and supplies.
- Investigate the causes of discrepancies. Large discrepancies are a sure sign of incompetence or malfeasance within your company. Smaller anomalies may simply be correctable mistakes, but they can also point to a larger, systemic error. Be prepared to deal with severe fraud, embezzlement, or other criminal activities by gathering evidence and cooperating with law enforcement authorities or the district attorney’s office.
- Evaluate and respond to your findings. Note down positive findings and processes for future audits. Provide recommendations to correct current discrepancies and prevent their recurrence. Clearly label and store documents, provide both hard and soft copies, and inform the accounting staff of the location of these audit files. Schedule the next audit and leave notes, instructions, and reminders.
- Consider hiring an external professional. An impartial professional views your books strictly and objectively, and will not hesitate to call out faulty or improper practices or anomalies. The auditor must be given full access and cooperation at all levels to perform their task competently. If your company is already being viewed with suspicion, hiring a well-regarded professional can help remove all doubt.
A well-performed internal audit will help you anticipate any questions a tax audit might raise, should the time come. It will also reveal updated information that allows you to make informed decisions regarding the future of the company.
Conduct Your Internal Audit
By Howtodotips
Learn the essential steps to conduct a thorough internal audit, from gathering documentation and studying past audits to investigating discrepancies and evaluating your findings.