Auditing is essential for a company because it allows us to pursue and achieve different corporate objectives. Business processes need a variety of forms of internal control to ease out supervision and monitoring, detect and prevent irregular transactions, measure ongoing performance, to maintain satisfactory performance and also to promote productivity.
Auditors gauge the risk of material misstatement in a company’s financial reports. Without a system of internal controls or an audit system, a company will not be able to make reliable financial reports for any internal or external purpose. Internal audit serves a vital role for companies in fraud prevention. If you are interested in taking a step forward and working on the audit process, then this guide will help you to understand the steps to an effective audit. Keep reading!
Steps to an Effective Financial Audit
Following are the steps to an effective financial audit.
Analysis of Internal Reporting Systems
Company finance details need to be proper for a comprehensive audit to be carried out. If there’s any issue emerging in the reporting cycle. It is essential to sharpen in on this as quickly as possible. All the documents, Invoices, bank statements, receipts should be processed as soon as possible, following their issue.
If the crucial pieces of data are not given in good time, the internal accounting process itself becomes undependable.
Evaluate Data Storage Procedures
The Electronic records of every transaction from the last financial year should be on file and readily obtainable to keep things easy. Printed versions of the data would correctly have been copied in electronic form through manual or scan input. If there are archives of data from past years, these would be just as easy to operate. The personal information such as customer data must only be kept for as long as it is necessary. Next comes reviewing accounting processes and system, which is equally important.
Review Accounting Processes and Systems
This step demands a steady and systematic approach. Steer through every separate aspect of the accounting system to make it sure that all necessary information is available.
Keep an eye on the mistakes which are made through human error. It is counted that you will be able to detect at least one. The accounting services should incorporate software to detect mistakes made in the human input and correct them.
Measure the Threats of Fraud and Risk
Initiate who holds the information and power to enter financial records and how each process safeguards to repel thefts and discourage fraud. Customer confidentiality is a primary priority, and the prospect of leakage of data and interfering must be adequately investigated.
Comparison Between Internal and External Records
The scope of the audit should not touch that of separate external auditing. It’s essential to be sure that financial data represented to shareholders and other interested parties match to let them know what’s going on behind the scenes.
Check that the figures which are listed on internally-published cash holdings statements, financial performance records and income meet the presented to the other organisations. Directly have a comparison between purchase receipts from the suppliers with internal records of the transactions and where it is applicable to make it sure that they present the same information.
Examine Tax Returns, Records and reports
The timeframe for which tax records must be kept on the file varies from one country to another, in the UK, it is five years from the submission of the tax return.
Have a check that the tax reports are submitted tally with internal records of returns and tax paid. Pay huge attention to areas in which figures are more likely to artificially inflated, such as in annual and expenses revenues.
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