By: Jenni Huotari, Audit & Assurance Partner
Hello my name is Jenni and I’m an auditor. And no, I don’t work for the IRS.
This is a common misunderstanding that comes with the territory of being an accountant and more specifically, an auditor. So in order to clear up any confusion, I’m here to pass on this truth to you … not all auditors work for the IRS.
What it really boils down to is WHY the audit is being conducted in the first place. An auditor for the IRS assures that information is being reported correctly, according to tax laws, to verify the amount of tax reported is correct.
An auditor, like myself, is an accountant (read, we love the numbers) who prepares and reads financial statements to not only ensure accuracy, but also help make sure the organization is running efficiently. Yes, you read that right. We like reading your financial records. No, we’re not crazy … or boring.
Why would you voluntarily need an audit you might ask? Well, aside from my sparkling personality and wit at your place of business, there are a number of reasons why you would need an audit or why it might even be useful.
- Outside users of the financial statements need them. For example, creditors and/or lenders need to know your financial status.
- The owner of the organization wants to have an audit. This may be due to a retirement plan or a specific industry you’re in.
- It’s beneficial to know your financial status and the health of your organization. This could be for a number of reasons, such as getting your business ready for sale.
Further compounding the confusion is the fact that there are a few different types of assurance work (read, assurance is the broader term for the services while an audit is one type of service):
- Compilation. A compilation consists of obtaining a trial balance, formatting and grouping accounts for correct financial presentation in accordance with generally accepted accounting principles (GAAP). Compilation procedures consist of completing a checklist and proposing adjusting journal entries if errors exist, if any. There is no assurance (opinion) issued in the compilation report.
- Review. In addition to the compilation procedures listed above, a review consists of inquiries and analytical procedures performed on certain accounts within your company financial statements. Analytical procedures include but aren’t limited to analyzing revenues and expenses, gross margins and key metrics related to accounts receivable, accounts, notes payable and fixed assets. There is limited assurance that no material modifications exist in a standard review report.
- Audit. A financial statement audit is the most comprehensive of the compliance services we provide. An audit consists of three main phases which include planning, fieldwork and reporting.
- Planning involves gaining an understanding of your organizations internal controls, processes and procedures and assessing risks surrounding your financial statement areas and designing appropriate tests related to those areas.
- Fieldwork is where the bulk of the time is spent testing balances utilizing outside confirmations and verification of balances from third parties. In addition to the substantive testing of balances and similar to a review and audit consists of several inquiries and additional analytical procedures.
- Reporting is the final stage of an audit where we typically write the audit report including footnotes, present the audit report to the owners, a board of directors or management and opine on the financial accuracy of the organizations accounting records in the form of an audit report.
Make sense? If not, no worries. We can help you understand when an audit, compilation or review might be necessary (or beneficial) for your organization. Further, we’ll help you understand what’s going on each step of the way.
As long as you don’t ask me if I work for the IRS …