What is an audit?
A basic and quick audit definition would be that an audit refers to looking at the financial reports of any organization. Auditors will look through these reports and examine a company's financial operations to ensure that the company runs properly, appropriately, and lawfully.
It can also be helpful to have an audit of a company conducted as an audit is an objective opinion on the financial statements of a firm - which can thus highlight any areas of weakness. Even an internal audit should help identify any issues with cash flow, inventory inefficiencies, or profit reporting. An IRS audit is when the IRS audits a company's financial statements to ensure that what income the company is reporting on their tax return matches what they are really earning.
Given that an audit examines a company's financial statements to determine whether they are accurate or not, auditors go through and review all transactions and statements with a fine-tooth comb to ensure that everything that is recorded is verified and truthful. It should therefore check all and any income statements that the company has produced. In doing so, the annual income and expenses will be examined to assess whether the correct profit or deficit figures calculated are correct. This can include going through invoices to ensure that they are booked and reported correctly in the right month versus when the work was conducted and when the corresponding invoice was paid.
Auditors will also inspect annual financial statements. A company's assets or liabilities will be scrutinized closely to find any anomalies or mistakes in past financial statements. It can be an excellent opportunity to identify how much cash the company does have on account versus what should be the case. It is also an excellent opportunity to consider amortization and depreciation procedures to see whether they are still appropriate. This is particularly the case when it comes to the value of intellectual property, which can be hard to assess.
It is only by having verified accurate information that it is possible to work from financial statements to the best advantage. That is why internal audits can be a hugely beneficial process to undertake, so learning how to audit your company's financial statements can materially improve a company's success.
While Contractbook may not initially be considered a resource helpful when conducting an audit, the software and documentation that Contractbook can create can actually be invaluable to one. Our data-driven contracts make audit trails and audit management a far more streamlined event, making the process simpler and easier. Less time is spent going through paperwork, and instead, an audit trail happens as standard. Data can then be derived from contracts easily - again taking out much of the laborious and time-intensive hard work that auditing can create.
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