We know how nerve-wracking an external audit can be for our clients and customers. The nature of external audits often makes them seem like a test of a company’s operations and integrity – having something like this can fastly bring tension and stress. However, we believe that it’s all about perspective and human mindset. While the results of an audit can indeed hold lousy news, an external audit has a hidden added value – it offers you the opportunity to improve the running of your business.
Provides validity to the accounting process
An external audit provides an objective overview of a person’s business accounting process. By giving business owners insight into the accuracy and validity of their company’s accounting information, business owners who do not have an in-depth understanding of accounting principles can better grasp the financial situation of their business.
Errors in the accounting process may prohibit business owners from choosing the best decisions for their work. Audit procedures are designed to find the mistakes and glitches in the system and fraudulent activities. External audits also ensure that the financial transactions are recorded according to GAAP (generally accepted accounting principles). It essentially helps business owners cover their back when it comes to following the many rules and regulations associated with accounting within a registered entity.
Identifies weaknesses internally (and suggests improvements)
Having defects within your internal structure is inevitable – how you tackle them matters. Some companies prefer to sweep their shortcomings under the rug and continue operating with blinders. However, business owners always have the opportunity to choose an assertive approach by giving underperforming spaces within their company/brand the attention they’re due.
An audit assures company administrators WHO are not concerned with the accounting functions daily that the business is following the knowledge they’re receiving and helps cut back the scope for fraud and poor accounting. So, not only does an audit enhance the credibility and responsibilities of the figures being submitted to numerous stakeholders (shareholders, employees, customers, suppliers, investors and tax authorities), but it also assures shareholders that the financial figures show an accurate and fair view.
The management letter
Auditing standards require the auditor to write a management letter to the directors. Some business owners question the worth of such a letter and may get a letter and should get a touch-sensitive once confronted with a management letter detailing the areas within a business that require further assessment. Once again, it’s all about perspective! Firstly, a management letter is addressed to the company’s management and is not submitted to any of the authorities – therefore, its contents are purely confidential. Secondly, a management letter brings the management’s attention to particular control deficiencies that will result in inappropriate data collection for financial reporting or compliance purposes.
An audit can be a costly and time-intensive affair, which is why many people in business and entrepreneurs have the wrong perception about it. Many people feel that by conducting an External audit, they are wasting time and resources of the company, but this could not be farther from the truth. When the review of a company is done, a company is under no legal obligation to evaluate its books of accounts by a third party and provide the results to the public. Still, an external audit has its advantages for company management and the company’s current and potential investors.