Financial audits is an examination of company’s financial accounts to examine that all transactions and records are free of any malpractice, mismanagement and misinterpretation. Governments across the world require certain businesses to conduct financial audits at regular intervals to submit a report. These helps the authorities to look out for potential frauds and malpractices. Financial audits can be either external or internal. Let’s get to know about them in detail.
External Audits
External audits are performed by unbiased auditors who do not belong the company being audited. These audits are required by the govt authorities and stakeholders to learn about the authenticity of financial statements and records. External audits can be done monthly, quarterly or annually. The biggest positive associated with an external auditor is that the unbiased auditor is not influenced by the financial practices and customs used by the company’s accountants and aim to offer an objective viewpoint of the company’s financial situation. This helps the stakeholders and management to make various decisions regarding the future of the organisation.
Internal Audits
Internal audits are performed by the company’s own auditor to examine the day-to-day, monthly, quarterly or annual performance of the company. An internal audit helps the organisation in learning the mistakes in operations and the solutions for them. It also helps in finding out the financial discrepancies, if any. This audit is mainly used as a feedback for management to enhance the efficiency. Regular internal audits helps the companies to manage proper financial statements and records and also prepares them for the external audits.
Benefits of Auditing a Company
Both external and internal audits are quite beneficial for a company. Here’s how they can make a big difference.
1. Clear Picture of Financial Performance
Regular audits can paint a clear picture of the company’s financial performance over a period of time. It helps the stakeholders in making financial decisions for the betterment of the operations.
2. Effective Systems and Control
Auditing helps in establishing effective systems and control. By performing regular internal audits, a company can analyse the systems which are not working and opt for better and more refined way of controlling the operations.
3. Compliance with the Laws
Auditors have deep expertise in financial accounting standards, along with a thorough understanding of local laws and regulations. Whether a company is intentionally or unintentionally failing to comply with these standards or legal requirements, an audit can effectively uncover such discrepancies.
4. Analyse Profit or Loss
Audited financial statements give a clear view of a business’s financial health. One benefit of financial auditing is that it helps to easily see if the company is making a profit or a loss and identify any problem areas. An audited financial statement is a valuable tool for making informed decisions. By comparing reports over time, you can also see if changes in company policy have affected the finances.
5. Obtain Investments or Loans
A company which is regularly audited and maintains a clear and concise records of its financial statements has a better chance at seeking financial assistance from the investors. Commercial banks are also likely to loan money to those companies which have their finances in order.