Importance of Auditing: 6 Reasons Why You Should Audit Your Financial Statements
By: Martin Hegelund
The importance of auditing cannot be overstated. A good auditor is not only able to clear your issues quickly but also helps you improve your company. Although the main reasons for a financial audit have to do with business and legalities, you shouldn’t forget the psychological aspect that is very important when dealing with other entities, such as banks, clients, and shareholders. If you conduct regular audits, you will generate more confidence from the people you work with, as well as with government institutions.
What Is a Financial Audit?
Once an auditor arrives, they will conduct a full and detailed examination of your company’s financial records and any statements made by your accountant(s). The audit will find any small detail that was missed by your own system and will place them in a report. While it is possible for an audit to be conducted internally, it is best to hire an external expert who is not otherwise connected to the company, so their report is as objective as humanly possible.
There is a long list of reasons why you should have regular audits, but the most important ones involve accountability and good business practices.
- You, Will, Have a Detailed Overview
Once the auditors have concluded their findings, you’ll have the final report in your hands. From here, you will have a complete picture of how your business is working. Even if you have spent a lot of time ensuring that your company has clean records and abides by every rule possible, there are bound to be small mistakes that should be corrected. Additionally, the report will show you where your company is most stable. A good manager must know where to spend his or her time, and the first step in understanding that is to know where you don’t necessarily need to focus anymore.
- Receive an Additional Perspective
People – including yourself – can become complacent, even in the best possible team. This can create significant problems in the future, which is why it is critical for you to conduct an audit as a preventative measure.A good auditor will give you clear remarks on whether you are demonstrating full compliance and if there are any serious flaws in your system. They’ll also offer helpful suggestions on how to solve them. If you conduct the audit early on, it could mean the difference between your company flourishing and struggling in the near future.
- Improve Your Credit Rating
If you have a solid and expanding business, it is best for your bank, shareholders, and investors to know everything about it. Having regular audit reports is very beneficial to your relationship with any stakeholder or financial institution that you have business with. Your business investors want to know the success your company is experiencing, and want to make sure that you are trustworthy.Your bank will be more willing to offer you a more affordable loan if they have definite proof you have the resources to repay the loan. That places you in the low-risk category in their perspective. The same thing can be said about investors, as increased confidence in your financial statements will ensure their continued support in your company.
- Become More Reliable
If you own a larger company that has upper management or corporate investors, regular audits can provide reliability in your statements and inspire assurance that everything in your business is going as planned.Even if you are a small business or just starting out, you will benefit greatly from the reliability your company will portray to the tax officials. They will be able to rely on your audited financial statements to reach their conclusions about your level of taxation or other matters from their area of interest.
- Be Certain Where Your Company Is Going
With a professionally conducted financial audit, you will have much more information about which parts of your business are going smoothly and which ones require a bit of tightening up. For the areas that show no mistakes, you can be quite certain that you will not need to do any further recalculations to your original business plan. Those that show significant problems, however, demand a closer look: how are they run and how can you devise an efficient plan, before those seemingly minor mistakes hurt the company?
- Promote Accountability
Additionally, you can use the auditor’s report to promote accountability for the managers and employees in your company. After all, individual employees will focus more on dependable accounting and management if they know that the company is regularly audited. They will also be able to correct any flaws in their own work while these problems are small, so they can make their work even more reliable in the future.
Having regular audits of your financial statements is essential for the trustworthiness of your company. Audits will help you track and solve any internal issues, and will help you convey greater reliability to investors, shareholders, banks, and tax officials. Furthermore, thorough audits will give you greater peace of mind and will leave you with more energy to plan for the future.