Auditing is a business function used to review a company’s internal controls and accounting information processes. While small businesses may not use this function as frequently as larger businesses, it is an important function for safeguarding operations. Companies often develop a strategy or set of procedures to follow when conducting audits. This strategy often depends on the size of the company and scope of business operations.
Two types of audits are used frequently in business: internal and external. Internal audits usually are conducted by a company’s accounting staff. This audit is often less formal than external audits and is used primarily for managerial decisions. A public accounting firm or an individual certified public accountant (CPA) usually conducts external audits. These audits represent a professional third-party review of the company’s accounting information. External audits help outside business stakeholders make decisions about the company.
Business strategies help companies set specific schedules when conducting internal and external audits. Internal audits can be completed as frequently as needed according to the company’s accounting policies. External audits may be required according to a lender, investor or government regulatory rules. Because external audits can be an expensive and time-consuming process, developing a business strategy audit process help limit these negative side effects of external audits.
Audit strategies usually outline the specific business functions or processes reviewed during internal or external audits. These strategies often review specific financial or business information in a sequential and logical manner. Strategies include auditing cash management, fixed assets, payroll, general accounting or other specific business functions. Audits also may include specific limitations on the acceptable number of errors for each process. If more errors are found than acceptable, companies may widen the audit to determine the depth and breadth of these errors.
Companies often develop operational or compliance audit strategies in addition to financial audits. Operational audits ensure business departments complete functions according to standard operating procedures. This audit also may review an employee’s training and education on company policies. Compliance audits ensure companies meet specific guidelines relating to a third-party organization. Outside organizations can include government regulatory agencies, professional trade groups or licensing organizations.
Audits can help companies streamline their operations and reduce wasteful operations. Companies often use audits to secure external financing from banks, lenders or investors. These audits provide these groups with information relating to the effectiveness of business operations and the company’s ability to remain a going concern. Audit strategies also can help companies create flexible operations so they can adjust to new or different business requirements.
- "Modern Auditing"; William C. Boynton, Raymond N. Johnson and Walter G. Kell; 2001
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