An audit is a control of your accounting or bookkeeping. It’s often done by an external party, but can also be internal.
Audits are done to see whether financial statements, accounting, and tax filing have been done according to rules and regulations, and that a business is accurately representing its financial status.
The auditor will usually create a report which outlines all of their findings.
What are the different types of audits
There are three main types of audits, and they’re used in different scenarios.
Internal audit
This is performed by an employee of the business. It’s done to ensure that the company’s financial reporting is compliant with rules and regulations, and that the management has the information they need to make sound business decisions.
An internal audit can also be used to find mistakes or flaws in the company’s financial statements—and to fix those mistakes—before going ahead with an external one.
If you’re worried about making mistakes in your accounting or reporting, you can always get help from an accountant.
External audit
This is carried out by an external auditor, in other words a person who is completely independent and who has no ties to the company. This means that the audit is unbiased.
Public corporations and large proprietary companies have to undergo an annual external audit of their financial statements. Some companies choose to voluntarily undergo it to ensure that their financial statements are compliant with rules and regulations, or to give stakeholders confidence in the accuracy of the reports.
The most well known auditing companies are Deloitte, KPMG, EY, and PricewaterhouseCoopers (PwC).
Government audit
The government can audit your financial statements to ensure that they’ve been correctly prepared, and that you’ve filed and paid the correct amount of taxes. You can be randomly selected for this.