An auditor is a person who looks after the accounts of companies to ensure the legality of financial records. They also play a advisory role to the company by guiding about possible risks.
There are 3 types of audits mainly, they are
1. External Audits
2. Internal Audits
3. Internal Revenue Service(IRS) Audits
External Auditor also known as Statutory auditor is an auditor engaged by the client to evidence an opinion on the whether company’s financial statements are error free. They are though paid by the company for auditing, considered as independent. Most of the publicly traded companies require external auditors to get a opinion over financial reporting.
Internal Auditor is considered as the employe of the organization. They work for government, public traded as well as non-profit companies. Internal auditing is a process which helps to improve an organizations operations. It helps an organization to develop a systematic and disciplined approach to improve the risk management ability.
Internal Revenue Service(IRS) Audits
IRS is the investigation of financial information of an organiztion to make sure that they are reported correctly as of tax laws.
Why Auditing is required for a Business?
Audit is important for any business organization as it gives reliability to financial statements and provides a confidence to the share holders that the accounts are true. It can also help a organization to maintain error free accounts and improve the business by reducing the risk factors.
when Audit is Required?
An audit is required when
- company has a annual turnover of more than 10.2m
- the company has assets of more than 5.1m
- a company has more than 50 employees
In some cases few companies must have an audit, they are
- A public company
- An authorised insurance company
- A company which is involved in banking
- A company whose shares are trade in European states.
In addition to the above, if more than 10% of the share holders demand for an audit then it has to be undertaken.
7 Factors to consider while choosing an Auditor
Choosing an auditor is a difficult task. In order to choose a right auditor for your business, you should consider the following factors
- Industry Experience
- Technical Knowledge
- Quality Assurance
- Reasonable Fees
- Reputation of the Audit Firm
- Continuous support for decision making
when audit is conducted for the purpose of external requirements, the auditor must meet the conditions that the external regulator requires.
For example, if your audit is to follow with ASIC requirements, only a registered company auditor(RCA) can conduct audit. You can confirm registration of your auditor by checking their details in professional registers section of ASIC website.
On finding the prospective auditors you can find the right one for your service requirement. It is good to enquire the expertise and knowledge of the audit firms in non-audit areas too.
Its better to choose a auditor who has industry experience. Because choosing a experienced auditor avoids generic mistakes and provides efficient audit. You can get valuable services and can convert the analysis into actions which can take up your business. Continuing with the same audit team working with your organization will help to get more precised audit reports.
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Make sure your auditor is using technology and data analytics for doing audit reports, if not you will be missing important details of your business. Technology can grasp complete data of large organisations more quickly and interprets business data easily. You can receive more information and data items to improve your business operations.
Before choosing any auditor you have to make sure how they ensure their professional service quality, auditing standards, reporting practices and respective relevant legislative requirements. Example, whether regular peer reviews are in place? Do their auditing staff attend trainings? etc…
When choosing an auditor, the fees also matters. However, ASIC has highlighted that it is important to ensure the audit fees are adequate and don’t have any adverse affect on the quality of the audit. There are cases where financial reports are held out to be audited but the auditor was not a registered auditor or the ‘audit report’ was not the proper report to meet requirements! so make sure you get what you pay for.
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Reputation of the Audit Firm
Find more about the strengths and weaknesses of the auditor which helps you to understand their fame in the market. Mostly you need to be confident with choosing an auditor, always collect complete information on the auditors and then assign work for them. References or awards are a indication of an audit firm’s fame in the industry.
Continuous Support for Decision Making
A good auditor who is in regular contact with your organization can also be a business advisor to make you attentive in matters that are related to your business. Decision making in business requires real time data, your auditor can help in this and provides you required information when you are planning to expand your business. While an external auditor are regulatory for some entities, if your auditor is a business partner then he will be able to provide assurance, deep analysis and focused business advice.
Entities who need an external audit to meet requirements for external regulators
- Public companies
- Registered schemes
- Large proprietary companies
- Companies limited by guarantee
- Small proprietary companies that are foreign-controlled
- Larger charities
- Australian financial services (AFS) licensees
- Larger co-operatives
- Larger associations
- Holder of authority to conduct a fundraising appeal
- Self-managed super funds (SMSF).
Can an audit benefit your business?
Yes, an audit’s aim is not only to maintain error free accounts but also show the business transparency, so that the investors will have confidence. It also provides some business benefits like
- Transparent Financial Reports for Investor Confidence
- Internal Control for Fraud Prevention
- Audit Technologies Improves Risk Identification
- Tax Risk Management
- Industry Experience for Insights into Best Practice
- A Platform for Expansion
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Transparent Financial Reports for Investor Confidence
The financial reports provided by a qualified auditor is more transparent to the investors and financial institutions. Investors think of audited financial reports as more precise than unaudited ones and have more confidence that the audited financial data is a basis for business decision making. If you are planning to merge your business with other business entities, an audit will help you to find unknown risk factors.
Internal Control for Fraud Prevention
Most auditors give management letters at the end of their audits to provide management the data about control issues identified while auditing. A good management letter contains information on how to resolve the issues, your improved internal controls give a poweful means to prevent errors in financial reporting.
Audit Technologies Improves Risk Identification
Now a days auditors use Computer Assisted Audit Techniques (CAAT) and analytics to improve the efficiency of their audit reports. CAAT provides tools for data manipulation and identify unexplained patterns. The reports generated clearly represent trends in financial data and emphasize control weakness.
Tax Risk Management
The auditors also investigate the major tax risks and inform them to the management. This minimizes the tax violations and other tax risks.
Industry Experience for Insights into Practice
Auditors possess many years of experience in various companies throughout their business life cycle. You can use this knowledge of the auditors for long term benefit of your business.
A Platform for Expansion
The benefits that result from a audit can be significant-identification of control weakness, improvements to internal controls and ensuring good foundation for tax compliance. An audit provides a platform for your business to tackle challenges in future and over the course of life cycle.
A business entity having their financial statement processes and detailed data analysis done by a qualified professional is much more towards success than one which doesn’t have. so consider the above mentioned factors to choose a right auditor for your business organization to maintain error free financial reports.