Audit is a word that can strike fear in the leadership of a business or organization, but when handled proactively, it can in fact be beneficial. By working with a certified public accountant (CPA), an audit can provide a large-scale snapshot of an organization, how its processes work, and if those processes are effective. Identifying areas needing improvement in advance of problems arising can lead to a resolution.
What Is an Audit?
In general, the purpose of an audit is for an unbiased and independent third party to evaluate the processes and/or finances of a company or entity in order to express an opinion on whether or not the processes and/or finances are presented fairly. Companies often choose to perform an audit within their company voluntarily to measure and improve performance and procedures, to gain the trust and confidence of investors, lenders, and creditors and to uncover risks that need to be addressed.
Different Types of Audits
While most audits in general are meant to make procedures and processes stronger, there are many different types. Some of the most frequently performed audits that CPAs can assist with are:
Financial Statement Audits:
This type of audit is to provide reasonable assurance that a company’s financial information and related disclosures are fair, complete and accurate. This financial information is used by many different types of people, from owners to banks to investors and others, and they want some level of assurance that what they are reading is legitimate.
These types of audits focus on how well management is operating a given activity. Management may need to determine how to maximize or minimize something, how to better understand their risks, and how to fine tune controls or processes.
The purpose of a construction audit is to audit against the construction contract. The focus is on the construction project. The audit highlights deviations from the budget with explanations, measures cost effectiveness over time, identifies barriers or risks to meeting deadlines, and how well the project is meeting the requirements stated in the contract.
An internal audit focuses on the practices happening within a company and generally includes looking at its governance, risks, and controls. In this situation, a certified public accountant can assist a company in identifying financial or legal risks as well as corporate concerns, and recommend a plan for resolution.
This audit will identify and evaluate internal controls over information technology (software, systems and platforms). These controls typically cover access to systems or critical areas, change control systems, resiliency, recovery of systems, and other key IT operations. This can help measure how well equipped a company’s systems are to protect valuable information and assets from outsiders.
In order to make a company more efficient and effective in achieving their daily goals and objectives, a performance audit may be used. It is common for certain methods and programs to be evaluated and modified if needed to enhance a company’s performance. These audits are often utilized by government entities and agencies when reviewing programs implemented by law.
This audit is a specific type of a financial statement audit, but geared toward a Home Owner’s Association (HOA). HOAs are often referred to as Common Interest Realty Associations or CIRA. The goal is to provide reasonable assurance that the financials are complete and accurate. The audit reports are usually delivered to the home owners.
Potential Benefits of Audits
Having an audit performed for your company or organization can be a good thing. Audits performed by a certified public accountant often yield a number of benefits, such as:
- Improvement of day-to-day business operations. Audits are designed to help bring the big picture into view. Any systems or processes that are a hindrance to that broad view may require reevaluation and reconsideration. If they are not moving the organization forward, they may be holding the company back.
- Increased credibility. Any time a business enters into a financial transaction such as a purchase or loan, a sound audited financial statement can boost their reputation and credibility while minimizing potential risk.
- Identifying fraudulent activity. An audit is adept at tracing loose ends down until every dollar is accounted for. To that end, an audit may sometimes reveal the presence of fraudulent activity.
- Safe foundation for growth. Before a business or organization takes on an expansion, an audit is instrumental in updating finances, practices, and methods to be as effective as possible so that an educated decision can be made about the possibility of expanding the organization before taking the leap.
What to Look for In A CPA
A well performed audit can enhance a company or organization’s reputation and credibility in tangible ways. For this reason, choosing the right CPA is a task that should not be taken lightly. Some considerations for selecting a certified public accountant to assist you with audits should include:
- Education. Verify their education is in the appropriate subject matter areas, with additional degrees being a bonus.
- Licensing. It is critical that the CPA you choose be licensed to practice accounting in your specific state.
- Experience. Be sure they have years of experience in performing successful audits and that their resume reflects their capabilities in this area.
- Affiliations. In Texas, certified public accountants are required to complete roughly 120 hours of continuing professional education every three years. Ensure that they are current with these CPE requirements and that they are also involved in accounting and financing professional organizations such as the Texas Society of Certified Public Accountants.
Working with a reputable CPA for an audit will ensure your business or organization is running the way it should and that all finances are in order and accounted for.