For many people, when they think of the words “audit” and “auditor”, they get a negative feeling based on what they think it means. Being an auditor, I can say the work we perform at a public accounting firm is NOT the same as an Internal Revenue Service audit. When people think of “auditors”, they think of receiving a letter from the IRS followed by the long process of providing documentation to determine if every single line on their tax return is correct. However, that is not the case in a traditional financial statement audit. The work we do is meant to help your company both by providing a sound check-up on finances and by detecting any possible issues you may be unknowingly experiencing.
An IRS audit (the one commonly imaged when you think of the word “audit”) is a review or examination of an organization’s or individual’s financial information to ensure information was reported correctly according to tax laws and to verify the amount of tax that was reported on the return is correct. These audits are usually chosen randomly or based on a screening. Screening will look at “norms” of similar tax returns and select tax returns for audit that are outside of those norms. An IRS audit is not a choice for those selected. You will have to provide a lot of documentation to essentially “prove” the income, expenses, and deductions listed within your filed returns.
Financial Statement Audit
On the other hand, financial statement audits are performed on an entity – not on an individual. During a financial statement audit, our team will come to your office or ask for files electronically. We will look at your internal records related to the amounts and disclosures in the financial statements along with your financial position. It is performed with a materiality threshold, which means we are not looking at every single transaction, but rather looking at transactions based on their perceived risk. From this, we express an opinion with respect to the financial statements and whether they comply with the accounting practices the company uses, which gives your organization confidence that the financials are fairly stated.
The purpose of the audit is to provide independent assurance that management has fairly presented the financial statements, in all material respects. This result of the audit is to add credibility to the Company’s financial position and business performance, which can give the shareholders, investors, banks, customers, employees, and other stakeholders comfort that the numbers they use for decision making are presented fairly. Many companies are required to have annual financial statement audits due to debt covenants, grant requirements, or other external sources. Finally, an audit can help a company find or prevent fraud by helping management improve their internal controls, however, this is typically not the main focus of a financial statement audit.
Rather than come into an organization with a big red pen to tell you all that you may be doing incorrectly, our goal is to help our clients as they grow their Organizations. We partner with our clients to make recommendations for improvements within their Organizations that contribute to efficiency and accuracy in financial reporting. If you’d like to know more about our assurance services, please check out the information on our website and contact us with any questions.