By Thomas Misch
When a company or individual hears the word “audit”, they might automatically assume the worst. The horror stories that you might read on the internet about paying heavy penalties that can range from thousands to millions of dollars, doesn’t help to change this negative interpretation. But what if I was to tell you that the word “audit” should really be viewed as a comfort for a company or individual? As you digest that crazy thought, let me explain a few benefits that come from conducting an audit.
Why Conduct an Audit?
There are different benefits that would compel a company or individual to have an audit conducted on their behalf. Public companies, for example, are required to have an audit conducted by an independent CPA firm as their businesses are traded on the U.S. market. Private companies may not be required by law to have an audit performed, however, they may hold assets or have liabilities and other credit instruments with financial institutions, or have investors who require having an audit conducted. Even high net worth individuals who must report high earnings or no earnings at all may choose to have an audit conducted.
Benefits from Conducting an Audit
The benefits of conducting an audit are not always highlighted on the front page of the daily newspaper. At the very least, an audit provides a second set of independent eyes on a business’ day-to-day operations. For companies, it may bring to light problems that you may not have noticed prior to having an audit done. Consider it more of a check-up or an annual meeting. An audit can show that an organization’s operations are running effectively, that it’s in compliance with all regulations, and can also give management a sense of confidence. At the end of the day, the auditor’s main job is to provide an opinion on management’s financial reporting. Whether for a public or private company, having clean financial reports can help assess performance, forecast future profitability, and help ownership or investors make decisions.
Why am I Being Audited?
Small businesses and individuals may also find themselves being audited. This might be triggered by overall earnings reported, the opening of overseas bank accounts, cash businesses, or the declaration of a multi-year loss on a Schedule C. Although the fears already discussed are hard to kick, conducting an audit could be beneficial in that it can help identify problems and weaknesses with your accounting system, improve tax planning, and most importantly, give you a clearer understanding of your financial situation.
Don’t let the word “audit” strike fear in you right away. Whether you’re a multi-million dollar corporation, a small hedge fund, a family jewelry store, or an individual, don’t let an audit drive you crazy. Take a step back and think about the benefits of being required to have an audit or even opting yourself to conducting an audit. Although there may be findings discovered during this process, it’s not meant to be an investigation to find misstatements – it’s meant to provide assurance that financial records are stated fairly and position you or your company for greater success.