Assuming audits are the most complex and expensive, why would a company consider having an audit?
First of all, audit engagements are painful by nature. Most clients enjoy them about as much as going to a dentist for a root canal. However, if companies completely understood the benefits of an audit, they may not frown on them as much.
For the most part, an audit is usually dictated, which means someone such as a banker or other creditor has required the company to have one performed. In some cases, the owner of a company may request an audit be performed. He or she may view an audit as the best way to ensure the company financial statements are accurate.
How can an audit benefit your company?
The primary benefit of having an audit performed is the level of credibility associated with the engagement. An audit is the highest level of assurance a CPA can offer. Consequently, it is viewed very favorably by the general public. Having audited financials prepared can in many cases provide a company more opportunities for increased credit. In addition, there may be certain customers of companies who will only work with companies who have audited financial statements prepared.
As I noted earlier, auditors must have a thorough understanding of the client’s system of internal controls. In addition, the auditors must go one step further and test them to see if they’re operating as described. Knowing that these steps are performed by someone independent of their company gives management a comfort level they cannot achieve internally. Upon completion of an audit, the auditors are required to report to management any significant deficiencies or material weaknesses they observed as well as provide recommendations on how to improve in the areas noted.
How can businesses ensure the auditing process goes smoothly?
The best way to make sure an audit is as painless as possible is to put policies and procedures in place to satisfy the auditor’s needs. Auditors are generally very structured. They have work programs in place to ensure they complete the audit in accordance with professional standards. Although every audit is different, there are still specific standards they must adhere to.
Prior to having an audit performed, the company should document its policies and procedures. They should have very specific organization charts, especially in the accounting department. They should have manuals, narratives or flow charts illustrating how and with whom tasks are performed. They should also perform tests of the system to ensure it’s working as documented.
They should request the CPA provide them with a list of information he or she will require for the audit engagement. Determine what can be done by them versus the CPA. They should be very specific about timing of the engagement. Make sure they keep the dates.
Larry M. Kane is a director with Glenn M. Gelman & Associates CPAs and Business Consultants. Reach him at (714) 667-2600 or [email protected].
