It is not easy to rightly audit finances for small and medium businesses. A financial audit refers to the examination of the financial records of a business. This is done through a systematic review of the transactions, financial statements, accounting books, cash holdings, internal policies, and other sensitive financial data.
Financial audits dig deep into a company’s finances and provide valuable information about a business. When done correctly, a financial audit gives clarity about how a business operates, uses its money, and assumes the risks. This understanding is crucial for the success of any business however big or small.
Financial audits also help identify errors in the books and records. These can be used to calculate operational efficiency and highlight specific areas where the business can benefit and make a profit in the long-run.
Although many businesses have routine financial audits once every year, some small businesses might conduct occasional audits to organize their financial data, find missing records, and ensure that there are no discrepancies.
In this blog, we will outline the basic steps of conducting a financial audit. These will simplify the process for you and make it easier for you to audit finances for small and medium business:
Gather documents linking to your finances –
At the first step of to audit your finances, it is must to collect all financial documents namely sales receipts, invoices, bank statements, and others. It is essential to have all documents in one place as it helps in decreasing the chances of any discrepancies at a later stage.
Look at record-keeping –
You must check and review your company’s record-keeping policies to ensure that all financial data is being stored properly. If you are a small business, you must keep an electronic copy of the cash register, cancelled cheques, invoices, and all other important financial documents at one place that is easily accessible at the time of any need.
Review your accounts with Focuslyte accounting system –
It is essential for you to review each individual element of your company’s accounts such as debits, credits, journal entries, ledger, and financial statements. To rightly audit finances a one needs to ensure that all the necessary accounts are present and that entries for debits and credits are posted in the general ledger in a timely way. Focuslyte gives you an advantage to automatically be able to correct human mistakes and typing errors.
Review internal control policies –
You must occasionally review your company’s internal policies such as separation of accounting duties between employees, locked safe to hold pending cash deposits to the bank, and password protected accounting software that is able to track and showcase which activity was performed by whom and at what time. You must check these internal policies for the level of protection that they offer from accidental incidences of theft and fraud.
Compare internal and external records –
You must check and verify the internal records of income, expenses, and cash holdings of your business with the external records. Always ensure to compare your supplier’s purchase receipts with the internal purchase records as this will help you immediately identify errors if any. It is helpful to check these and rectify any discrepancies on a monthly basis.
Look at Tax Records –
Take out time to analyse your company’s internal tax records and officially filed tax returns. It is a good practice to maintain tax records of at least the last 7 years.
Check your tax receipts from IRS and compare them against records of your tax paid and tax liabilities. It is beneficial to also review the range of credits and deductions in your tax receipts.
Internal financial audits are extremely beneficial as they also prepare you for possible external audits. Financial audits are often also helpful for small companies to obtain a business loan.
Not only this, the information from financial audits can be used to prove to the stakeholders that the company’s financial practices are good.
FocusLyte is the best cloud based accounting software. It helps you keep all your financial records in one place and eases the process of financial audit for your business. It has been designed to be GST complaint and helps file GST returns in an easy and efficient manner.
FocusLyte offers you a host of accounting solutions in a single package. It is available at an affordable monthly cost.
Learn more about how your business can benefit from FocusLyte accounting software, signup free trial and manage your business accounting with intuitive UI.