The importance of financial audits to your small business

Small business owners often cringe at the mention of an audit. But while an audit by the IRS can be an extremely stressful event, an internal audit or an audit conducted by a third party is often essential to solid business operations. Auditing internal controls on a regular basis is the only way to ensure that financial statements are accurate and that there aren’t any discrepancies. Here are some advantages to financial audits.

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Catching Client and Vendor Mistakes

There are often issues with client or vendor payments that may not be caught until the books are looked at. Such as a vendor who hasn’t fulfilled their contracts or clients that have not made payments. If a client has a payment logged into another client account, for instance, it will still register a payment but on someone else’s invoice. Depending on the financial system, it’s possible that these errors may not be caught without external checking.

Ensuring the Accuracy of Statements and Returns

When the IRS conducts an audit, they aren’t trying to get additional taxes. Actually, an audit can be favorable. An audit seeks for and finds inaccurate statements. An audit assures investors that your books are accurate and that you’re doing everything you should be. Investors, both current and prospective, will feel more confident about their investment and their chances at recouping and growing their investment.

Optimizing Business Processes

Audits show areas in which businesses are able to prove their processes and streamline them. Accuracy is a measure of controls and also efficiency. Fewer steps mean less room for error. Thus in removing error during an audit, an audit also improves productivity.

Empowering Employees to Take Initiative

Improving controls often means also describing which employee is responsible for which area of the financials. This gives employees more of an idea of what their responsibility is to the company. Often employees don’t feel that they have the authority to make changes and consequently they wait or do not speak if they see problems. So, streamline operations and facilitate training.

Ensuring Regulatory Compliance

Finally, audits are often necessary to catch issues that may not necessarily be tax or accuracy issues but rather issues of compliance. As an example, companies within certain industry sectors need to be able to assure certain levels of privacy for their financial records or they may need to keep financial records for a specific amount of time. An audit doesn’t just track accuracy; it also ensures compliance.

Overall, audits are an excellent way for an organization to gain more control over their financial situation. Review your books, are they in full compliance? A regular audit can absolutely be beneficial to a company and its employees and can give assurances to stakeholders.

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