All business audits share things in common, but do you know what they entail? The auditor, whether someone within your business or an external auditor, will do a thorough evaluation of your accounting books and financial statements. They usually check an entire year’s worth of financial data, including income and expenses. If you’re a small business owner, or maybe just curious about the auditing process, keep reading to learn about the different audits for businesses.
Internal Audit
An internal audit is a self-audit that’s scheduled and conducted by a representative of your own company. Many businesses do an internal audit once a year to ensure the accuracy of their books and financial statements. An internal audit is for your own purposes, and to check for errors or other issues.
Larger companies usually have audit departments, but a smaller business might employ just one or two people to conduct audits. Internal auditors don’t just check business finances; they also check company policies, procedures, and processes to check compliance with internal guidance and federal, state, and local laws.
External Audit
An external audit, also known as an independent audit, is an audit conducted by someone outside the organization. This is called an independent audit because the auditor has no loyalty or responsibility to the business that could create a conflict of interest. In their report, they’ll have to provide an opinion as to whether your company passed the audit. An auditor might take one of the following stances in a business audit:
- Clean opinion – The business’s books and financial statements accurately represent the company’s financial position.
- Qualified opinion – The auditor disagrees with parts of the company’s financial records, but the audit was too limited in scope or access to come to a definitive conclusion.
- Adverse opinion – The auditor found that the business financial records materially misrepresent the company’s financial position.
- Disclaimer of opinion – In this type of report, the auditor doesn’t give any opinion on certain financial records.
IRS Audit
An IRS audit occurs when the IRS finds potential errors in your tax return. Usually, the IRS schedules audits for tax returns that were filed in the last three years. A few factors can trigger an IRS audit. For example, if you claim losses for multiple years in a row or report high income levels, you may be subject to an IRS audit.
Conclusion
As you’ve read above, small businesses go through the audit process to check on financial records and other important documentation. Whether it’s an internal or external audit, it’s best to let a professional do the job. At MARIELA RUIZ, CPA, PLLC, we have the audit services you need to keep your business in check. Contact our team today!
