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Balanced Business: How to Approach Auditing Your Own Company
Mentioning the word “audit” is enough to send most business owners into a panic. Afterall, financial audits are a deep dive into a company's financial situation. Matters such as accounting records, internal controls policies, cash holdings and other sensitive financial areas are all the areas which a financial audit places heavy scrutiny on. This is why it is important that business owners equip themselves with the knowledge needed to perform a financial audit on their own books. This strategy is one that can help a business prepare for a potential external audit as well as double up as due diligence in order to discourage internal theft or fraud. In today’s article, we look at how you can approach auditing your own company, so read on to find out more!
Pick A Slow Season
If you are planning on auditing your own company, it is always advised that you pick a slow season to do so. This is so that you are not distracted and are able to give the audit your full, undivided attention. Preparing a balance sheet whilst juggling 20 other responsibilities is a recipe for failure, so always plan ahead on what the best time for an audit will be.
Gather Your Financial Documents
Step 2 is to gather all your business financial documents. It is important that you review the systems that have been put in place to transmit your business’ financial information to your accounting department. In order to do this, you need to gather all your financial documentation such as invoices, bank statements and sales receipts. Once gathered, these documents should be sent to your accounting department for processing. Timely and reliable information is of utmost importance when it comes to performing your own audit as they prevent any potential discrepancies in your company’s financial records. Always make this priority #1.
Analyse Your Tax Records
An important part of performing your own audit is analysing your tax records. Tax records should be kept for a minimum of at least 5 years. It is important that you look through your company's tax receipts from the Australian Taxation Office and compare it against your own records of taxes paid and received in your company’s financial records. Some areas to pay extremely close attention to are the range of credits and deductions claimed on your most recent tax return as this is one of the areas where suspicious reporting and inflated expense numbers are most easily identified.
4. Look Into Cash Flow
Next up, it’s time to look into your cash flow. Doing so will allow you to identify cash flow trends and potentially alarming outliers. For example, if last year’s expenses were $20,000 and this year’s are $40,000, you need to pay close attention to exactly why there was an increase and compare them to your monthly and quarterly figures. By comparing expenses, you will be able to see if any potentially dubious trends exist. If you do identify such a trend, it is incredibly important that you look into the situation and dig deeper.
5. Review Your Control Policies
In order to ensure that your company is protected, it is vital that you look into your internal control policies. Your internal control policies will give you an idea of how protected your company is from theft and fraud. Internal control policies include things such as locked safes, separation of employees who are in charge of accounting duties, password protected computers and software and accounting software that tracks user activities and actions.
6. Review Your Accounting System
Lastly, a crucial part of a self audit includes thoroughly reviewing your accounting system. It is important that you look through your T-accounts (debits and credits), journal entries, the general ledger and your current financial statements. The purpose of doing this is to ensure that all necessary accounts are posted in a timely manner and present. Your accounting system should also be capable of correcting issues such as human error and common mathematical mistakes.
Performing a self audit may sound like an incredibly overwhelming and scary task if you have never done one before. However, with a little research, precision and attention to detail, approaching auditing your own company should be a lot easier than you initially assumed.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes