LUTZ BUSINESS INSIGHTS
what is a financial audit? does your company need one?
joe hartman, audit director
The word “audit” is scary. Many people associate it with the IRS’s close inspection of their tax returns. But should your company consider a different kind of audit?
There are actually more than a dozen types of audits. You may have done an internal audit of your own company. This involves examining the effectiveness of your internal controls by, for example, evaluating your accounting system and your general operations. It might involve an inventory count and a thorough search for fraud and errors. Internal audits are generally ongoing; they are not something you would only do periodically.
But an external audit is something you can’t do on your own. It requires the expertise and independence of a CPA. Once you appoint an auditor, he or she will provide reasonable assurance that your financial statements are free from material misstatement.
Also, on a consulting arrangement, an external CPA may perform some of the same analysis that your internal auditors do. For example, they can assess the efficiency of your internal controls and your operations activities. They could even be brought in to train your company-based staff on evaluation techniques, fraud-detection, etc.
This is important for two reasons. First, your internal auditors may be too close to the situation and hesitant to criticize the work of fellow employees. External CPAs bring an independent assessment and they don’t share those potential constraints. Second, in-house staff may not be well-versed enough in techniques to do a thorough, accurate assessment.
Do You Need One?
If you are a private company, an external audit is generally not required, except in the case of some nonprofits or certain lending or bonding arrangements. But audits add credibility to your financial reporting. You may want to consider one if you are, for example, applying for financing, presenting a grant proposal, or bidding on a contract.
Preparing for an Audit
You will save time and money if you prepare for an external audit ahead of time. Here are some of the ways you can do so:
- Know where all of your financial information is stored. You don’t have to print out everything that’s in digital format, but locate it. Have paper copies of anything that’s not on computers.
- Provide auditor requests as early as possible (even before audit fieldwork begins)
- Know who your experts are. Who will need to be involved in the audit?
- Know that you and employees will lose work time. Make sure you are at least caught up before it starts, if not ahead of schedule.
- Know what the audit’s standards are. What are the auditor’s expectations? This should be spelled out for you.
If you want help executing your internal audits or you would like to explore the possibility of an external audit, please contact us. We have helped many businesses with this complex, exacting process, and we’d be happy to do the same for you.
ABOUT THE AUTHOR
JOE HARTMAN + AUDIT DIRECTOR
Joe Hartman is an Audit Director at Lutz with significant experience in providing accounting, auditing and consulting services to privately-held companies. He works with various industries including services, franchise, manufacturing, construction, printing, and distribution.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA in Accounting, University of Nebraska, Lincoln
- Youth Sports Coach
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