Are your financial records on par with the standards required of modern businesses? Ensuring your financial statements are free from errors and discrepancies is indispensable in presenting critical business numbers to banks, shareholders, and even potential investors. Not sure what goes into a financial audit or how to get started? Read on to get a breakdown on the different phases of a financial audit and how you can automate this process.
What is a financial audit?
A financial accounting audit is a process that helps you maintain the accuracy of your company’s financial transactions. Audits ensure that stakeholders are provided with accurate and credible information so they can make more informed decisions about your company.
The Financial Auditing Process
The financial audit process involves having auditors evaluate the financial transactions and statements of your business. A typical business financial audit has four main phases: planning, setting internal controls, testing, and reporting.
The Planning Phase
To set off your business financial audit, you need to come up with a plan for data collection. This first step is essential in gathering accurate information about your business transactions to better understand your company’s current financial position. By identifying the best data collection method, you can quickly collect error-free quantitative data which is vital in maintaining the integrity of your financial statements and helping you make informed business decisions.
It’s also worth mentioning that the plan you need to put in place to collate business data should adhere to the regulations set by the GAAP.
The Internal Controls Phase
The auditors who will check the integrity of your critical business numbers will not just look at the data you have collected. They will also scrutinize the financial procedures you have put in place. To that end, establishing internal controls and adhering closely to them closely is as important as collecting historical information about your business transactions. Otherwise, it will be difficult for the auditor to come up with an accurate report of your organization’s financial status.
The Testing Phase
With the necessary business data on record and internal controls in place, the next item to tick off your list is the internal controls – to check if they are working.
To check how well the internal controls are working for your company, the auditor might request more information about your company’s business transactions, continue with the inspection, and see firsthand how the internal controls are being performed.
The Reporting Phase
How did your company fare in the course of the financial business audit? You’ll find out for sure in the Reporting Phase. An unqualified approval is the highest rating you can get. Next is a qualified approval, followed by a disclaimer, and finally, an adverse finding.
The audit report outlines an unbiased assessment of your financial statements and internal accounting processes. Use these findings to make necessary adjustments in your internal processes so your accounting team can avoid data entry errors and produce more accurate and insightful data in the future.
Automating your financial audit
A quick look at the financial audit process should tell you that it is a tedious task, more so if done manually. The good news is that on-cloud accounting software offers automated audit trail features. This feature is a convenient way to record your business’s financial transactions over time and help keep your business records organized. Aside from documenting invoices and payment records, your chosen software should also help you identify errors and correct them to make financial audits easier for your accounting staff.
A comprehensive financial audit is extremely useful in determining where your company is currently at and what you need to do to gear your business in the right direction. Automating some parts of the financial audit process is a crucial step in gaining better control of your business finances. Deskera encourages SMEs to use modern technology to streamline their business processes. Get in touch with our experts to schedule a free demo.