3 Different Types of Audit That a Company Requires

Audits can primarily fall into three categories: external, tax-related, and internal. This article will examine the different types and what outside help might be required to conduct them. There are requirements in accordance with accountancy standards and the law that need to be followed. It is important that external audits are conducted by independent accountancy firms. There are companies online that can help.

External Audits

Public companies are required by law to have their annual financial statements audited to check for any discrepancies. The auditor will view a sample of transactions and make sure that they can be followed through the accounts and to the bank and vice versa. This audit must be conducted by an independent CPA (Certified Public Accountant).

For the retirements plans that a company holds, they will be required to have a 401k audit. This is something that will need to take place annually where 120 participants start the scheme and continue unless they drop below 100.

External Revenue Service Audits

These audits are an examination of a company’s accounts in relation to their financial information. The audit is to ensure that the information has been reported correctly in accordance with the relevant tax laws. It will, at the same time, verify that the reported amount of tax is correct.

An external auditor will inspect the company accounts and records and then express their opinion as to whether the financial statements have been presented in a fair way and in accordance with the required accounting standards of their entity. This would be different if they were an individual or partnership as opposed to a company. The rules are also stricter for a public limited company as opposed to a private one.

In a sense, a company can be guided by the auditor, but it is best to be right in the first instance as any discrepancy can raise suspicion and result in not only a longer audit but another being carried out soon after to check if procedures are then being followed.

For some more information on audits, you might find the attached article useful.

Internal Audits

An internal audit evaluates the internal controls of a company. This will include its accounting processes and corporate governance. Regular audits will ensure compliance with the regulations and law and help with maintaining records, collecting data, and reporting financial information in an accurate and timely manner. These audits make sure that everything is running efficiently for when external bodies visit. They may also be carried out should a company suspect any wrongdoing among its staff who have accounting responsibilities, and where they have access to monies.

Auditors are trained in how to quickly see if things do not balance or where figures are placed in the wrong columns. For instance, with double-entry book-keeping, certain transactions will be recorded as a debit, whereas others will be required to be a credit. This is a double-check that all parts of a transaction have been accurately recorded, and it should become quickly noticeable if they are not when individual accounts are balanced at the end of each month.

Larger companies might employ their own accountants inhouse to carry out this kind of audit. Alternatively, specialist companies can be enlisted just for the audit, as is the case when accounts need to be independently verified as being correct to accounting standards and tax laws.

In summary, there are three types of audit, if we separate those external audits relating to financial and retirement funds from those that relate solely to tax inspection. In addition, internal audits can be carried out within a company to make sure that they are doing things correctly in accordance with their own standards and those expected of them by outside bodies.