What Is An Audit And Types of Audit ?
Before we explain types of audit we should know about audit first. In summary, the purpose of an audit is to examine your financial documents and transactions to determine if they are correct or not. In general, audits examine your financial statements as well as accounting books to evaluate the data.
You or your employees may conduct audits. Also, you could conduct an audit by a third party like WBS. Many business owners conduct regular audits, like every year. However, if you’re not organized or do not keep accurate documentation, your audits may require more time to finish.
Being a member of WBS (fastest and growing partner in the business), we suggest that all businessmen conduct audits regularly to achieve accuracy in business matters. Though many business owners don’t like the concept of auditing, audits can prove beneficial for your business. Find out more about the various types of audit below.
What Are The Different Types Of Audit
Audits are conducted in a variety of ways between businesses. For instance, an organization in the construction industry could conduct an audit to assess the amount they invested in an individual project (e.g. cost of suppliers or contractors). Audits are a great way to ensure that your business runs efficiently.
Following are the different types of audits:
1. Internal Audit
What is an internal audit? Internal audits are one of the types of audit that are conducted within your company. As the owner of your business, you will initiate the audit while an employee manages it. Companies that have board members or shareholders can utilize internal audits to update them on the financial health of their company. Internal audits are an excellent way to check for financial goals.
While there are many motives for conducting internal audits.
Reasons For Internal Audit.
- Propose improvements
- Monitor effectiveness
- Ensure your company complies with all laws and regulations.
- Review the policies and procedures for risk management
- Examine operation processes
2. External Audit
What is an external audit? External audits are performed by a third party, an accountant or the IRS or a tax agency. The external auditor is not connected to your company (e.g. he is not your employee). External auditors are required to adhere to generally accepted auditing standards (GAAS).
As with internal audits, a primary goal of external audits is to assess the accuracy of the accounting records.
Lenders and investors generally require external audits to verify that the accuracy of financial and other information is fair and accurate.
If external auditors audit your company, they usually issue the audit reports. Audit reports provide details of the audit and the findings that were discovered. The report also reveals whether your financial records are complete, have missing data or are inaccurate.
3. IRS tax Audit
IRS tax audits are conducted to verify the accuracy of your company’s tax returns. Auditors look for any discrepancies in the tax liabilities of your company to ensure that your business has not underpaid or overpaid taxes. In addition, tax auditors look for potential errors on your company tax returns.
Auditors typically conduct IRS audits on a random basis. IRS audits can be carried out by mail or in-person interviews.
4. Financial Audit
What is a financial audit? Financial audits are among the most popular types of audit. However, the majority of financial audits are conducted by external auditors. A financial audit is when the auditor examines the accuracy and fairness of a company’s financial statements. Auditors review the procedures, transactions and balances for an audit of financials.
The third-party typically issues an audit report about your company to creditors, lenders, and investors following the audit.
5. Operational Audit
Operational audits are similar in nature to internal audits. A functional audit examines your business’s objectives, plans, procedures, and operations results.
Typically the operational audits are carried out internally. However, an operational audit could be performed by an outside party. The purpose of an audit of operations is to thoroughly evaluate your company’s operations and identify how you can improve them.
6. Compliance Audit
An audit of compliance examines the policies and procedures of your company to determine if they comply with external or internal guidelines.
Audits for compliance can help you determine if your company is compliant in paying workers’ compensation and distributions to shareholders. They can also aid in determining if your company complies with IRS rules.
7. Information System Audit
Audits of information systems typically affect IT and software companies. Businesses employ audits of information systems to identify issues related to the development of software or data processing and computers.
This type of audit assures the system gives exact information to users. It also ensures that unauthorized individuals do not have access to personal information.
Additionally, non-software and IT businesses must regularly conduct small security audits to ensure their systems are protected from hackers and fraud.
8. Payroll Audit
Payroll audits examine the payroll procedures of your company to ensure that they are correct. In conducting payroll audits, examine various aspects of your payroll, including pay rates and wages, tax withholdings and information about employees.
Payroll audits are usually internal. That’s the reason because internal payroll audits help keep out external audits from happening shortly.
Employers should conduct their payroll audits every year to look for errors in their payroll procedures and ensure compliance.
9. Pay Audit
Pay audits is one of the types of audit that will help you find pay discrepancies between your employees. Pay audits can assist you in identifying pay disparities within your business. In a pay audit, examine differences caused by race and religion, age and gender.
Pay audits also can assist in ensuring that employees are compensated fairly, in accordance with your company’s area of operation and industry.
So these are the main types of audit, now let’s take a look on the importance of audit
The Importance of Audit
Audits are essential to gain a better understanding of the various aspects of your company. They can also assist in identifying problems early before they become major errors. Thus, WBS is available at every step to provide these advantages to our valued customers.
If you don’t perform audits, you might discover that you are reviewing inaccurate information that could later impact your business’s performance. Therefore, ensuring that you have a complete business information audit, accuracy is your main concern, and for this reason, WBS can be your business partner. We are not happy to see our trusted business partner move in the wrong direction for the sake of a small expense. We have highly skilled personnel at a very low cost to assist you. So don’t hesitate to contact us.
Before you toss audits off to the side, consider how they can help your small business by using WBS Business Solutions.
Other Benefits of Audit
- Find out about financial problems
- Catch errors
- Increase your business’s bottom line
- Keep yourself organized
- Make better business decisions
- WBS is available to the most prestigious and honorable clients.