What are the steps to conducting an internal finance audit?
- Examine financial documents
- Correct data discrepancies
- Make use of an accounting system
- Cross-check financial records
- Draft a report of the results
Conducting an internal finance audit ensures that your business is in compliance with financial regulations in all aspects. This is typically done so that your entire company is properly aligned with the corresponding financial statutes.
Internal finance auditing requires your financial statements, policies, and processes to be investigated to ensure that the audit report is representative of your financial situation. Continue reading to learn more.
Examine financial documents
The first step is for you to effectively examine your financial documents. These may come in the form of balance sheets, cash flow statements, shareholders’ equity statements, or income statements.
These documents typically reflect the company’s expenses and earnings, with respect to their investments, and other financial activities conducted over a specific period. Financial documents are typically assessed with the assistance of the most widely used analysis tools like debt management, profitability, risk evaluation, and the like.
Correct data discrepancies
Once your financial documents have been meticulously examined, you now need to take note of the many data discrepancies and financial errors that you may have encountered during the process. Mistakes are often unintentional, so it’s important to have them rectified in order to avoid being penalized by the Bureau of Internal Revenue, or other finance-related public authorities.
Errors or omissions are one type of discrepancy that is usually done when a transaction has not been accounted for, according to financial records. A simple way of correcting them is to check if the debit and credit are equal in your balance sheet.
Another common error relates to data entry. The best way to solve this is through conducting regular bank reconciliations as a way of cross-checking if your records at hand are accurate.
Make use of an accounting system
It’s important to make exhaustive use of the resources available to you whenever you’re conducting a financial audit. Now that many processes are becoming automated, you may also need to consider making use of an accounting system. This allows you to more accurately paint a financial picture for your company, as well as, prevent the most common bookkeeping and accounting errors.
Since accounting systems are digitized, they’re more accurate and less time-consuming compared to manual practices. They’re efficient, since they provide you with the financial data that you require, using only a short response time.
Accounting systems ultimately make the processes required in an internal audit, more simplified. Information such as net gain and loss, debit, credit, and the like will be easily made accessible alongside the use of an automated balance sheet and ledger.
Cross-check financial records
Cross-checking financial records is in many ways similar to conducting bank reconciliation. The operative word being “reconcile” means that this is a way for you to verify, and make your financial statements consistent with the records that are in the bank’s possession.
Make sure you have all the proper documents at hand such as books of accounts, cash receipt journals, bank statements, bank loan schedules, checkbooks, bank passbooks, and transaction records. Once you’re able to properly identify errors, and which transactions are those that may not necessarily have bank deposits, you’re ready to create your bank reconciliation report.
Draft a report of the results
After going through the meticulous steps of collating, collecting, examining, and correcting financial statements. You’d need to do one of the most essential processes in the internal auditing process and this is creating a financial report.
The report is a comprehensive summary and what you may call the culmination of internal auditing. It elaborates on the financial aspects that have been subjected to examination. It also draws conclusions from these findings — both positive and negative — and makes recommendations on the areas that need improvement.
Internal audit reports should adopt an objective tone as much as possible. It shouldn’t contain excessive jargon or technical terms that may elude comprehension and understanding. Therefore, it should be concise without sacrificing or excluding important financial-related information.
Conducting an internal finance audit is no easy task, as it requires an accurate understanding of your company’s financial statements and processes.
Attention to detail, meticulousness, and objectivity are required in order to come up with a fully comprehensive internal audit report that is able to create a report that is an accurate depiction of the financial status of the company.
These tips, while they’re not exhaustive, can hopefully serve as a starting point for internal financial auditing for your business.