When most small business owners hear “audit” they immediately think of the IRS. In reality, audits are used for a variety of functions unrelated to tax review.
From printing services to inventory ordering and more, any business activity can be reviewed by an audit. Here’s what you need to know about the benefits of an audit and how to ensure your audits are trustworthy and effective.
What Is an Audit?
An audit is any formalized inspection of an organization’s accounts, activities or other records. There are two primary types of audits: external and internal.
For your purposes, an external audit is nearly always going to come from the IRS or another financial authority. In contrast, an internal audit is one your business performs on itself and may have little or nothing to do with your finances or bookkeeping.
For example, large enterprise companies regularly perform internal process audits to investigate their own operations, procedures and internal business activities.
The Institute of Internal Auditors says an audit’s primary mission is, “To enhance and protect organizational value by providing risk-based and objective assurance, advice and insight.”
Put simply, internal audits are used to provide independent oversight for your own business activities, potentially revealing vital information you may not even know yourself.
What Makes an Internal Audit Successful?
The difference between a formal audit and a casual review is one of mission, qualifications and guaranteed objectivity. If you’re performing an audit as part of due diligence for a business deal or a similar activity, you probably even have a legal responsibility to ensure that the audit meets the highest standards in those areas.
Here are a few key characteristics for a good small business audit:
Independence and Autonomy
One of the core principles of auditing is that auditors need to be independent of the businesses they’re reviewing in order to provide accurate conclusions. While you’re free to spend a week reviewing your own records and call it an “audit,” your findings won’t hold any weight with outside parties. The results don’t gain importance simply because you call your process an audit.
For a small business, the best audit is likely to come from an outside investigator because it’s expensive to maintain your own in-house auditing team. During the process, auditors must be given enough independence and open access to ensure objective results.
A good audit relies on verifiable data backed up by concrete records. That means auditors aren’t usually working with subjective methods like interviews and questionnaires. Instead, the best audits rely on paperwork and other verified records.
A good audit should be completed as quickly as possible to ensure good results. Lingering audits can get bogged down with information that makes it impossible for auditors to issue a helpful final report. Additional, extended audits raise the specter of interference or a failure in objectivity since a proper audit compiled from high-quality records shouldn’t meet many hiccups in the process.
An audit is only as good as its results, and those results are only as good as its process. If you or an interested third-party are going to rely on the audit’s findings, every step of how it was conducted needs to be transparently available for review.
Companies use different methods to ensure transparency while protecting proprietary information, but the main point is that the transparency exists and is available to qualified or interested parties for scrutiny and verification.
When done well, an internal audit isn’t just a reason to search for record printing services, it’s a valuable tool for getting insight into your own operations.
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