Audits are performed to determine the validity and reliability of a companies financial statements and the strength of the internal controls. Audits can be required in a number of circumstances, including by the internal revenue service, a lender, or as a result of legal action against the business.
Being prepared for an audit is important for several reasons:
- It will shorten the duration of an audit.
- Can save money
- Avoids having to pull and organize documentation
- Can shorten duration of an audit, by making sampling easy
- Can be performed primarily off site
- Avoids staff being taken away from day to day activities to fulfill document requests.
- Provides confidence in the outcome
The bottom line is that auditors like to see well organized records. This provides the auditors with confidence that the business is well run, and can avoid unnecessary and excessive scrutiny.
The auditor will provide an opinion of the accuracy of financial statements based on the evidence found. Due to resource constraints an auditor will typically use statistical sampling to make their determination.
This generally means that the auditor will randomly sample transactions. They will determine whether proper documentation exists and whether the timing of the transaction matches the financial statements Auditors will also examine whether the transaction occurred with a legitimate third party and whether appropriate controls are in place to provide consistently reliable information.
If you can show your auditor that your back-up documentation is well organized and that you have strong internal controls, you will have very little to worry about in the event of an audit.
We recommend appending digital scans of all backup documentation to the appropriate record in your accounting system. We also recommend performing a three way match. This will show an auditor, that you have strong controls and that back-up documentation is readily available. It will also save significant cost in the event of an audit, because there will be no need to search through paper files, and auditors can be provided with remote access avoiding disruptions to the office environment and employees daily duties.
Our bookkeeping service will protect you in the event of an audit because we take the following steps
- Scan and save all back-up documentation with the transaction record in the accounting system
- Perform a three way match of purchase orders, packing slip, and invoices
- Auditors like to know that verification is performed by a third party because it is a control against internal manipulation of records and fraud.
By going through these steps you are protecting yourself from potential fraud or embezzlement in addition to making a potential audit much more straight forward. Having good records is a good business practice, providing efficient easy access to records saving your employees time, and saving you money.