Often, when officers in a company are looking over the financials, one of you will ask in a reflective tone, “Do we need an auditor?” This question is akin to the one asked by friends who have gathered around someone who has taken a nasty fall and is bruised and bleeding: “Do we need a doctor?” If you are concerned enough to ask the question, the answer is more than likely, “Yes, you need an auditor.” Entrepreneurs and other executives have a natural reluctance to refer monetary issues to an auditor. They are afraid they will be insulting the integrity of those in charge of the company’s finances or they might be implying there is a significant fiscal problem.
In reality, those in charge of accounts for any business should expect oversight and transparency, especially among the firm’s officers, which is one of a company’s most important virtues.
Qualities Needed in an Auditor
When you realize you need to find an auditor, a number of questions immediately come to mind. First, are you looking for an “inside” audit from someone who will become temporarily or permanently part of your business team, or are you looking for an “outside” audit to examine the company’s accounting picture and give a full, one-time report? Next, you will want to know what special skills are required of the auditor you are seeking. Regardless of the job to be done, you will want the auditor to have proper certifications, ample experience and a record of unimpeachable integrity. Finally, whether an inside or an outside auditor, you want this person to be able quickly to gain a strong grasp of how your business operates, what your corporate goals are and why an audit is important in this particular instance.
Common Reasons Auditors Are Required
Needing an auditor does not make your business stand out either in an unusual or a negative way. The reality is that every organization should undergo regular audits. Indeed, the absence of any audit over a lengthy period of time should be considered a red flag. What are the most common reasons companies need auditors?
- Stockholder and public assurance. To demonstrate for potential investors, for your current shareholders and for the business community that your firm is operating with integrity, a regular audit is a boon.
- Accountability requirements. Often you are doing business with an institution that wants to make sure your company is holding up its end of the bargain. This may be particularly true if you are working with some sort of governmental entity.
- Streamlining corporate finances. It is amazing how often a clear-eyed, objective look at your accounting picture will reveal simple changes that make significant differences.
- Maintaining integrity. Chances are your business books are completely up-to-date and appropriate. A policy of regular audits reminds financial officers to continue to be observant.
Things You Should Know After the Audit
As an entrepreneur or an officer in your business, you will go into an audit with the perception that this thorough examination will reveal things about your company’s financial picture that would not come to light through the ordinary conducting of business. You can expect that the audit will reveal whether or not the accounting procedures you have been relying upon are accurate. You cannot make adequate financial decisions for your company if your corporate books are incorrect. You can expect that the auditing process itself will organize your accounts so that you will be able to access all the pertinent information your need quickly. You will be able to see the “postmortem” of your past financial decisions: you can see how your finances were impacted by the day-to-day operations of the company in the ongoing business climate. Importantly, the audit will reveal any data that is missing or inaccurate.
The Next Steps
Once an audit of your business has been conducted, should you expect anything to be different? The fundamental distinction between an auditor and an accountant is that the accountant sets up accounts and records transactions for the business. The auditor examines and evaluates the work that the accountant has done. If an auditor finds the company’s books to be clear and accurate, no changes are needed. If any inaccuracy is found, the necessary changes will suggest themselves.
