Mention of the word “audit” can undo even the most levelheaded executives. What’s important to know is that your organization has control in the process – from choosing your preparation team to your auditors – and that progress, not perfection, is what will determine a successful audit experience.
As we move into the second half of the year, now is the time to anticipate audit needs and address associated concerns. To do so, we’ll highlight common audit categories and what can be expected from each.
Common Audit Categories
- Operational (aka Internal): Examining resource utilization to ensure appropriate and efficient application given organizational objectives, these audits may include elements of a compliance audit, a financial audit, and an information systems audit.
- Financial (aka External): Focusing on questions of accounting, recording, and reporting of financial transactions, these audits also evaluate the adequacy of internal controls, including operational efficiency and overall legal and regulatory compliance.
Sector-specific versions of the financial audit include:
Public Sector: Evaluating the financial affairs of state-owned enterprises to confirm that operations are serving the best interest of the public and promote transparency, these audits go beyond the private sector criteria of reliable financial statements to ensure good government practices.
Value for Money: Assessing the efficiency and effectiveness of nonprofit entities, such as public sector or charitable organizations, these audits are typically performed as part of a financial or public sector audit.
- Tax: Determining the accuracy of tax returns, these audits can be triggered by different jurisdictional rules; some requiring regular audit intervals while others selecting companies for audit at random.
Regardless of region, the following activities increase a company’s potential for scrutiny: higher than average income, out-of-proportion deductions, financials that are rounded or averaged, and claiming losses year over year. [QuickBooks]
- Compliance: As the name implies, these audits confirm the organization’s adherence to federal and state regulations, policies, and procedures.
- Information Systems: Addressing the internal control environment of automated information processing systems, these audits typically evaluate system security, input, output and processing controls, backup and recovery plans as well as facility reviews.
- Environmental & Social: Measuring the environmental and social impact of economic activities, these audits validate the sustainability and equal employment claims that are increasingly made by companies in annual reports and other corporate literature.
- Investigative (aka Forensic): Exploring alleged violations of federal and state laws, examples of these types of probes include misuse of assets, cybercrime, and conflicts of interest.
While the audit experience has been cast as something between a punishment and a trap, companies would be best suited to take a different perspective: view an audit as both a dialogue and an opportunity for improvement. Be honest, don’t shy away from business issues or inconsistencies, and be confident that good intentions and a plan for betterment will spur success.
At Navitance, we have deep audit experience across for-profit and nonprofit sectors as well as startups. If you have questions or concerns regarding audit preparation or financing, don’t hesitate to contact me at email@example.com.