• Home
  • Business
  • Companies
  • Economic
  • Management
  • Marketing
  • Partnerships
  • Services
Wednesday, January 20, 2021
Business System Guide
Advertisement
  • Home
  • Business
  • Companies
  • Economic
  • Management
  • Marketing
  • Partnerships
  • Services
No Result
View All Result
Business System Guide
  • Home
  • Business
  • Companies
  • Economic
  • Management
  • Marketing
  • Partnerships
  • Services
No Result
View All Result
Business System Guide
No Result
View All Result
Home Business

Auditing 101

by Nala Samir
4 months ago
in Business
0
Auditing 101
153
SHARES
1.9k
VIEWS
Share on FacebookShare on Twitter

If you’ve ever known an accountant, then you’ve probably familiar with the term “audit,” but you may not understand exactly what it means. You probably know it involves finances, but it’s important to understand the different types of audits and how they could affect not only your business but also your own personal finances.

1. Definition

An audit is a process through which a company’s financial statements are examined objectively. Usually, the audit is performed by an external party such as a firm or the Internal Revenue Service; however, internal audits — or audits performed by someone within the organization itself — can help companies ensure transparency and preparedness.

2. Purpose

The purpose of an audit is to ensure that all organizations are honest about their financial status. Many companies or organizations hire auditing services to perform audits because a third party audit is typically more reliable; internal audits run the risk of showing bias toward their own companies.

3. Types

There are three different types of audits, and each is easily distinguishable from the others. Though they aim for the same general objective, each reaches the objective in a unique way. This can alter not only the reliability of the audit report but also the meaning of the results.

Internal

An internal audit occurs when a company asks one of its own employees to conduct an audit of that company. Since the person initiating the audit is part of the company instead of a third party organization, these audits tend to be viewed in a slightly different light. Rather than being a source of stress, these audits are more casual, as they will only be used for internal purposes. Information obtained in an internal audit goes directly to management — or, depending on the type of organization, a board of directors — so companies have direct control over who sees the results of the audit and what they choose to do with that information.

The purpose of an internal audit is, therefore, quite different from that of an external or government audit. Internal audits allow companies to ensure that they’re adhering to all standards and regulations. They force companies to reckon with any financial irregularities and maintain absolute transparency. Besides being a wise financial decision, this is an excellent way for companies to prepare for external and government audits. They can identify any flaws or inconsistencies within their companies and processes before a third party identifies them for them.

External

External audits are performed by third parties and do not primarily serve the company being audited. Instead, they objectively analyze a company’s financial statements for errors. Unlike internal audits, the results lack all potential bias and are therefore more useful to those, like stakeholders, who rely on businesses to have accurate financial statements.

Bias can work multiple ways, though. While some internal auditors show bias towards their own companies, some internal auditors who found questionable results were then met with an awkward situation: how to tell their peers that their financial documents weren’t up to par. External audits remove that potential bias, allowing a third party to more easily explain the sometimes harsh truth.

External audits provide a kind of confidence and security that is not provided by internal audits. Many rely on this information to make major financial decisions and therefore turn to external audits for more accurate answers.

Government

When determining crucial data, such as an organization’s taxable income, the government takes control of audits. This information is often public, as taxpayers want to see that their time and money are going toward a worthy cause. For example, in the United States, the Internal Revenue Service (IRS) can conduct audits of all tax-generating entities. They examine tax returns and other financial documents for intentional or unintentional signs of fraud.

Just because a government entity can conduct audits, however, doesn’t mean it will conduct them. For this reason, audits tend to carry with them an aura of fear and stress. People and businesses often feel that if they are being audited, it is because they have done something wrong or the government believes they have done something wrong. This could not be further from the truth, as audits often occur as part of a routine audit lottery. This means the audits occur at random, with no link to actual or perceived wrongdoing. It is merely a safeguard to keep all businesses and entities honest and transparent.

Nevertheless, there are a few things that will catch the government’s attention and increase the chances of an audit, such as the following:

  • Inexplicably high income
  • Larger and more frequent donation amounts
  • Higher number of claimed deductions

The results of a government audit primarily affect tax returns, but this does not have to be a cause for concern. Usually, entities with irregular financial statements are asked to adjust their tax returns to reflect inconsistencies found by the government, and this is sufficient action to address the error. This is obviously not always the case; intentional fraud, particularly, can leave bigger scars. Yet the average person has nothing to fear when it comes to a routine government audit.

Understanding the definition and purpose of auditing is important to any tax-paying entity. The three different types — internal, external, and government — each serve a different purpose. While internal audits help an organization improve its internal operations, external and government audits help identify financial inconsistencies and expose them for correction. Knowing this information can defuse the tension that surrounds the auditing process.

Related Posts

Why Issue Preference Shares Instead of Common Shares
Business

Why Issue Preference Shares Instead of Common Shares

January 19, 2021
Why Crime Scene Cleaners Orange CA Are What You Need Right Now
Business

Why Crime Scene Cleaners Orange CA Are What You Need Right Now

January 16, 2021
What You Need To Know About The New Car Insurance Scheme
Business

What You Need To Know About The New Car Insurance Scheme

January 14, 2021
How Does The Car Insurance Calculator Work
Business

How Does The Car Insurance Calculator Work

January 14, 2021
How Much Will You Be Fined When Driving Without Insurance
Business

How Much Will You Be Fined When Driving Without Insurance

January 14, 2021
4 Ways to Extract More Value from a Translation company
Business

4 Ways to Extract More Value from a Translation company

January 14, 2021
  • Trending
  • Comments
  • Latest
Why You Should Hire An Extended Development Team

Why You Should Hire An Extended Development Team

January 16, 2020
What is the difference between PHP, Ruby on Rails and Python?

What is the difference between PHP, Ruby on Rails and Python?

February 1, 2020
Company Uniforms Don’t Always Have to Be Pretty

Company Uniforms Don’t Always Have to Be Pretty

February 20, 2020
The Benefits Of Operating In a Healthy Working Environment

The Benefits Of Operating In a Healthy Working Environment

January 17, 2020
Why Issue Preference Shares Instead of Common Shares

Why Issue Preference Shares Instead of Common Shares

0
Small Business Details to help you get Began

Small Business Details to help you get Began

0
Economic Development Assistance Revives the American Dream

Economic Development Assistance Revives the American Dream

0
Small Company Marketing Ideas – Three Strategies for Success

Small Company Marketing Ideas – Three Strategies for Success

0
Why Issue Preference Shares Instead of Common Shares

Why Issue Preference Shares Instead of Common Shares

January 19, 2021
Why Are Students Heading Toward Canada For Higher Qualifications?

Why Are Students Heading Toward Canada For Higher Qualifications?

January 19, 2021
Crucial Differences Between A PDF And Word File

Crucial Differences Between A PDF And Word File

January 18, 2021
Why Crime Scene Cleaners Orange CA Are What You Need Right Now

Why Crime Scene Cleaners Orange CA Are What You Need Right Now

January 16, 2021

Recent Posts

  • Why Issue Preference Shares Instead of Common Shares
  • Why Are Students Heading Toward Canada For Higher Qualifications?
  • Crucial Differences Between A PDF And Word File
  • Why Crime Scene Cleaners Orange CA Are What You Need Right Now
  • 4 Reasons Why You Need Help From a Flood Damage Removal Service Parker Colorado

Archives

  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • April 2019
  • March 2019
  • March 2017

Recent Posts

  • Why Issue Preference Shares Instead of Common Shares
  • Why Are Students Heading Toward Canada For Higher Qualifications?
  • Crucial Differences Between A PDF And Word File
  • Why Crime Scene Cleaners Orange CA Are What You Need Right Now
  • 4 Reasons Why You Need Help From a Flood Damage Removal Service Parker Colorado
January 2021
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031
« Dec    

Site Navigation

  • Home
  • Business
  • Companies
  • Economic
  • Management
  • Marketing
  • Partnerships
  • Services
Business

Why Issue Preference Shares Instead of Common Shares

A company can use many ways to raise capital or funding for projects, campaigns, products, or expansions. The most common ...

January 19, 2021
News

Why Are Students Heading Toward Canada For Higher Qualifications?

Choosing where to study abroad can be daunting for most international students. Many considerations need to be analyzed apart from ...

January 19, 2021
Technology

Crucial Differences Between A PDF And Word File

Since the introduction of the Internet, electronic files have been steadily rising in popularity. It has come to the point ...

January 18, 2021
Business

Why Crime Scene Cleaners Orange CA Are What You Need Right Now

Finding out that one of your properties was the site of a violent crime is unsettling enough. Now that the ...

January 16, 2021
News

4 Reasons Why You Need Help From a Flood Damage Removal Service Parker Colorado

When your home is engulfed by a flood, the first priority is to get out safely. Once the waters recede, ...

January 16, 2021
  • Home
  • Your Inquiry

© 2020 Business System Guide. All Rights Reserved.

No Result
View All Result
  • Advertisement
  • Contact Us
  • Homepages
    • Home 1
    • Home 2
    • Home 3
    • Home 4
    • Home 5

© 2020 Business System Guide. All Rights Reserved.

Login to your account below

Forgotten Password?

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In