What do you know about audits? An audit is an evaluation of a company’s process or quality system to ensure that it complies with rules and regulations. Audits can be done internally by the employees of the company, an independent auditor, or an outside firm.
Many people associate the word “audit” with financial audits, wherein an independent party evaluates a company’s financial statements. However, there are many different types of audits used to evaluate a company. Here are the three common types of audits.
Financial Audit
As aforementioned, financial audits are a thorough evaluation of an organization’s financial statements and accounts. This is to make sure that a company is representing their finances truthfully and accurately. It’s also done to ensure that the company is complying with the laws of the government.
During a financial audit, your auditor will most likely review your account balances, transactions, financial statements, historical documents, internal documents, financial statements, and financial commitments such as loans.
Besides government compliance, you can gain several benefits from getting an audit. An audit can point out any accidental errors and discrepancies, but it can also possibly detect cases of real financial fraud. Financial audits can also take an overall look at the organization’s financial performance to see which areas need improvement and which can be streamlined and optimized.
Internal Audit
Internal audits evaluate the organization’s internal controls, which are described as the accounting processes used by the company’s finance department. This includes its risk management, corporate governance, and accounting processes. Similarly to the other types of audits, one of its main goals is to ensure compliance with the set rules and regulations.
There are several types of internal audits. Risk management, for example, focuses on detecting and preventing cases of fraud or abuse. It can also check the organization’s work culture, ethics, and morale and evaluate what can be improved. Environmental audits evaluate the organization’s impact on the planet, so that it can strive to turn to more eco-friendly strategies in the future.
While internal audits usually aren’t compulsory, it can help managers learn more about their organization’s potential, its strengths and weaknesses, and what direction it is currently going. By doing so, business owners can take steps towards improving their company further. Internal audits are done by the company’s in-house auditing team.
Operational Audit
Finally, operational audits examine the organization’s day to day and overall operations to check its efficiency and effectiveness. This type of audit goes beyond financial concerns and takes a look at the organization as a whole.
Your auditor would want to observe different aspects of your organization, depending on the type of operational audit. For example, department audits can specifically look at the procedures and processes of the marketing team or HR team. If changes are implemented around the company after an initial operational audit, a follow-up audit may be done later on.
Similarly to internal audits, operational audits are all about finding new ways to make business operations smoother and easier. Auditors can offer managers a new perspective on their business operations, find blind spots that you may have swept past, and offer changes with its own opportunities and risks. Unlike internal audits, however, operational audits cannot be done in-house. Instead, companies would hire an expert to do the audit for them.
If you’re looking for trustworthy auditors to perform audits for your business, consider booking a consultation with Sadsad Tamesis Law and Accountancy Firm.