One word that might strike fear into the heart of a business owner: “audit.” But, don’t run screaming from the room. There are several types of audits and they should not be feared, including the IRS-conducted business audit. Both the benefit and the key rule for audits are found in this Boy Scout expression: “Be Prepared.”
What is an Audit?
A small business audit is a formal (versus casual) review and examination of a business’ financial records, processes or systems. The most commonly thought-of audit concerns accounting records and tax returns, with a focus on accuracy and completeness and to ensure compliance with the law.
Three Types of Audits
An internal audit is initiated and set-up by the owner and conducted by a person or persons inside your business. This type of audit can examine any of the following and is designed to improve the operation of your business:
1. Management Audit
This type may review such items as the mission and goals of the business, business processes, personnel practices, sales activities, budget enforcement, marketing and shipping practices, etc.
2. Operations Audit
This type may dig deep into the operations structure of the business, and consider such items as relationships with suppliers, handling of inventories, payment of invoices, shipping practices, and safety records.
3. Financial Audit
This type will examine the accounting practices and financial records of the business including loans, tax payments, and budgeting practices.
An external audit is conducted by a third party to meet the objectives that you or a party to your business, such as suppliers or investors, may prescribe.
An IRS audit may be scheduled either as randomly selected or to review a possible discrepancy in your tax return.
How Can an Audit Benefit My Company?
A business audit can help identify things about your company that you may have not known. It can:
- Identify possible weaknesses or problems with your accounting system, helping to correct and prevent future problems.
- Uncover fraud, employee theft or unnecessary inventory shrinkage.
- Improve planning for tax season.
- Strengthen the accuracy and credibility of the company’s financial records.
- Boost the confidence of all company stakeholders.
What Makes an Audit Successful?
Here are several characteristics of an effective small business audit:
- In order to have any effect, the audit must be completed without bias.
- A good audit is reliant on quality records and concrete findings, not subjective information.
- The audit should be completed as quickly as possible to ensure that it is useful.
Seek Professional Accounting and Business Audit Assistance
Contact Estess CPAs, serving the greater New Orleans area. Estess CPAs specializes in helping small and medium-sized businesses with accounting, payroll, bookkeeping, and taxes. We can help you stay organized, with customized services to meet your needs, including auditing and IRS representation.