Audits: the Best Thing Your Business Didn’t Know It Needed

The prospect of conducting an audit – whether self-imposed or mandated from a third-party – can strike fear into the hearts of some business leaders. What will auditors uncover? If the business is out of compliance, how much will it cost to move into compliance? How aligned are the company’s accounting practices with industry best practices?  By taking a proactive approach with audits, companies can gain a clearer picture of their financial standing, identify inefficiencies, and often reveal hidden opportunities for greater growth. Rather than viewing audits as drudgery or simply a compliance exercise, business leaders can use them as a strategic tool to optimize financial management and reinforce stakeholder confidence.

Types of Audits

While businesses may perform different types of operational audits, such as cybersecurity/IT audits, workplace safety audits and sustainability audits, two garner the most attention for good reason: financial audits and tax audits.

Financial audits focus on verifying the accuracy of financial records and statements. Conducted by external or internal auditors, financial audits assess whether financial reporting follows established accounting standards. The goal of a financial audit is to demonstrate that a company’s financial records are accurate and free from material misstatements, whether due to fraud or error.

Tax audits, on the other hand, occur when tax authorities (such as the IRS or state revenue departments) set out to determine whether a business has correctly reported and paid taxes. These audits review income, expenses and deductions claimed on tax filings.

In terms of records being reviewed, financial audits and tax audits often overlap – both audits look at financial statements, income, deductions, and expense tracking. Discrepancies found in a financial audit can raise red flags for tax compliance, and vice versa.

Assurance vs. Audit

In accounting, assurance is an independent professional service that assesses the accuracy of financial data and other information. On the other hand, an audit, as explained above, is a formal, independent examination of financial statements, typically conducted by an external auditor, and is narrower in focus than the broader “assurance.”

Audits follow stringent standards (such as GAAS or ISA), and offer an audit opinion on whether the financial statements present a true view.

The audit process includes thorough testing of financial records, internal controls, and accounting procedures.

When to Conduct an Audit

A tax audit, unsurprisingly, is compulsory. When a company receives notification of a tax audit, it is beholden to the timeline set forth in the notification. Many tax audits last three to six months, although some can take longer.

A financial audit, on the other hand, can be compulsory or voluntary. A compulsory financial audit is governed by several factors, including public versus private status, investor requirements, loan applications, revenue size, and industry regulations. A company must conduct an audit when an investor or bank requires it, for example. If a shareholder owning at least 10% of company shares requests an audit, the company must comply. All publicly traded companies must conduct annual financial audits.

If your business is required to have an audit, this demonstrates financial strength. An audit requirement indicates high investments, strong positions with financial institutions, and/or the presence of good fiduciaries. Consider the audit a reflection of your company’s power.

Benefits of a Voluntary Audit

Opting for a voluntary audit provides key benefits that can strengthen a company’s overall financial health and governance. A voluntary audit will enhance transparency, building trust with investors and stakeholders, especially in privately held companies. They serve as a chance to uncover and address potential issues and risks before they become costly errors. In many industries today, conducting a voluntary audit will position the business for smoother transitions during growth phases or major events such as exiting and selling. The information businesses can learn from this type of audit can truly equip leaders to make informed, data-driven decisions. When businesses embrace an audit as a strategic tool, they can foster a culture of accountability and financial and operational resilience.

Putting It All Together

Whether your company is preparing a tax audit defense, looking to shore up financial record maintenance, or conducting a financial audit, consider partnering with a proven business advisory services firm. Take the guesswork out of best practices and look for a firm with specialized audit experience. Audit procedures can be an excellent way to improve your company’s financial performance and operations.

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Optimize your audit strategy with Aprio’s assurance advisors. From communicating with tax authorities to navigating compliance requirements, our holistic approach helps businesses grow. Let us help you minimize risk and enhance your bottom line. Schedule a consultation today and achieve what’s next at Aprio.com. 

Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed and private client services to build value, drive growth, manage risk and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,000+ team members providing solutions to clients in industries including manufacturing and distribution, non-profit and education, professional services, real estate, construction, restaurant, franchise and hospitality, government contracting and technology and blockchain. 

Ryan Myers is a financial reporting advisor and business growth partner whose clients include CFOs, CEOs, controllers, commercial real estate entities, and owners of manufacturing and distribution companies. Myers helps clients maximize the outcomes of growth initiatives, including new debt agreements, equity transactions, and new agreements with vendors and customers.