Commonly Used Terms

What is an Audit?

The inspection and examination of a process or quality system to ensure compliance with requirements. An audit can apply to an entire organization or be specific to a function, process, or production step.

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The audit can be carried out internally by an employee or externally by an outside firm or an independent authority. The purpose is to check and verify by an independent authority to ensure that the firms' accounts are being managed fairly and in accordance with the law. 

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There are four steps in the Auditing process:

1. Define the auditor's role and terms of engagement
2. Plan the audit
3. Compiling the information for the audit
4. Reporting the result

Different types of Audits:

1. Internal Audit: Internal audits take place within your business. As the business owner, you initiate the audit while someone else in your business conducts it. 

2. External Audit: An external audit is conducted by a third party, such as an accountant, the IRS, or a tax agency. The external auditor has no connection to your business (e.g., not an employee). And, external auditors must follow generally accepted auditing standards (GAAS). Like internal audits, and external audit's main objective is to determine the accuracy of accounting records.

3. Audit report: When your business is audited, external auditors usually give you an audit report. Audit reports include details of the audit process and what was found. And the report includes whether your financial records are accurate, missing information, or inaccurate.

4. Tax Audit: IRS tax audits are used to assess the accuracy of your company's filed tax returns. Auditors look for discrepancies in your business's tax liabilities to make sure your company did not overpay or underpay taxes.

5. Financial Audit: This is an analysis of the fairness of the information contained within an entity's financial statements. It is conducted by a CPA firm, which is independent of the entity under review. This is the most commonly conducted type of audit.

6. Compliance Audit: This is an examination of an entity or department's policies and procedures to see if it is in compliance with internal or regulatory standards. 

7. Operational Audit: This is a detailed analysis of the goals, planning processes, procedures, and results of a business's operations. The intended result is an evaluation of operations, likely with recommendations for improvement.

8. Investigation Audit:  This is an investigation of a specific area or individual when there is a suspicion of inappropriate or fraudulent activity.

Benefits of Audit:

• Compliance. An audit provides complete peace of mind for business owners and shareholders that the organization is 100% compliant with all of its current statutory obligations
• Credibility. provides invaluable credibility and confidence to your organization's customers/clients, stakeholders, investors or lenders, and even potential buyers
• An audit helps to identify weaknesses in the accounting systems and enables us to suggest improvements. The process keeps our partners informed of areas/situations where advice is useful
• Boost your business's bottom line stay organized