Audit
Candlefocus EditorExternal audits are performed by Certified Public Accounting (CPA) firms on behalf of the company's stakeholders. The purpose is to provide a reasonable level of assurance for third-party investors that the company's financial statements are free from material misstatement. Auditors assess the financial records, including the accounting system and internal control environment, to ensure the completeness and accuracy of the financial statements. The audit report from the CPA firm includes an opinion based on the overall findings from the review. The opinion includes "qualified," "unqualified (or "clean")," and "adverse" opinions. An unqualified opinion is the highest level of assurance a CPA firm can provide, while an adverse opinion requires the CPA firm to explain the reasons for their opinion in the audit report.
Internal audits provide a regular assessment of internal controls and activities that management is responsible for. The internal auditor evaluates the efficiency and effectiveness of the organization's operations and internal controls. An internal audit may include reviewing the organization's information systems, personnel controls, risk management measures, and other control procedures. The internal auditor should issue a detailed report with recommendations to help the organization improve its internal control processes.
Finally, Internal Revenue Service (IRS) audits are conducted by the IRS itself to ensure that companies are meeting their tax obligations. During this type of audit, an IRS auditor will review documents to ensure accuracy and compliance with tax regulations. The auditor may assess prior year taxes and examine records of personnel, expenses, and payroll to verify the completeness and accuracy of the information provided to the IRS. At the conclusion of the IRS audit, the auditor will issue a report with any discrepancies noted and provide a plan for resolution.
Audit is an important element for any organization to ensure that financial records are accurate, compliance with applicable rules and regulations are met, and that potential risks are identified. Utilizing both internal and external audits is the best way to ensure that organizations have a comprehensive view of their financial environment and can make informed decisions to increase their success.