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What Is Auditing?
Auditing, or a financial audit, is an official examination and verification of a business’s financial records.

The main goal of auditing is to make sure that a company’s financial statements are accurate and are following regulatory guidelines. Auditing also gives investors, creditors, and other stakeholders reasonable assurance that they can rely on a company and its integrity.

Now, it’s important to note that auditing doesn’t provide a complete guarantee that every digit recorded in a company’s financial reports is accurate. Auditors work within a specific, reasonable margin of error known as materiality. The volume of materiality depends on the size of the company and its reported revenue and expenses.

For small businesses, an accounting error of a few thousand dollars might be significant, but for a large corporation like Apple or Amazon, such a material mistake may be considered as a conventional mistake and not a cause for concern.

Preventing Fraud
If the government audits your financial statements and finds that your business has been manipulating its financial health, or hiding revenue and losses, you’ll likely deal with severe fees and legal punishments. Your business will also acquire a bad reputation, and you will most likely lose reliability in the eyes of your customers and stakeholders.

Recurring internal audits by a professional auditor or accountant of the company play an important role in detecting these fraud cases before they become substantial and problematic. Having a rigorous auditing system set in place alone prevents and scares employees or vendors from attempting a scheme to defraud your business in the first place.

1. Internal Audits
An internal audit is an audit performed by a qualified auditor or accountant who is part of your company. This audit helps assure your business is in compliance with laws and regulations and is accurately recording financial information. Regularly performing these internal audits also ensures risk management and guards you against possible issues such as fraud, waste, or financial abuse.

You can conduct these audits on a weekly, monthly, or annual basis, depending on the circumstances and the agenda which best suits your business demands.

You have to identify which department you wish to audit first during these internal audits. Next, the chosen auditor will collect as much information on that department’s internal control process, and conduct fieldwork testing. Once the evaluation is completed, the auditor will prepare an official auditor’s report, follow up with management regarding any issues found, and suggest possible solutions.

2. External Audits
An external audit is an audit of your financial statements made by an independent, third-party professional. These types of audits can be extremely helpful as they’re more unbiased and reliable than internal audits.

External auditors can be candid and honest about the issues found during the audit, without affecting daily work relationships within the business. Key responsibilities of an external auditor include planning and implementing audit procedures, examining accounts and financial statements, analyzing business risks, preparing an audit report, and discussing the end conclusion with the management department of their client.

Internal audit. Internal audits are conducted by a person or a team within your organization. ...
External audit. ...
Tax audit. ...
Financial audit. ...
Operational audit. ...
Compliance audit. ...
Information system audit. ...
Payroll audit.
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