Almost every business and organization deals with money on a day the day basis. On most cases, this money is managed on behalf of others. It may be the tax payer, the investor in a business or a shareholder. This money must be managed in a responsible and legal manner and there are many laws governing the management of such funds. Financial audits can help to make sure that an organization manages its funds properly.
Auditing is necessary because there is a need to have checks and balances in place. If this is not the case, the organization is vulnerable to fraud and theft. Irresponsible management of money can cost businesses dearly and it is vital that they are able to recognize problems before they become serious. The authorities also need to be reassured that all relevant laws are observed.
Auditing is always conducted by an independent professional that has no ties to the organization that is being audited. The professional examines all the records of the organization and then produce a report. The report includes explanatory notes and a summary of the accounting policies of the organization. Normally, the report is presented as part of the annual report of the organization and in many cases it becomes available for scrutiny by the general public.
In essence, the report produced by the auditor reflects the financial position of an organization at a given date. The investigations of the auditor can reach almost all levels of the organization, including the quality of management practices and the aptness of short and long term business strategies. The auditor also examines the measures that are in place to ensure proper accounting practices.
Many businesses and other organizations submit to auditing voluntary. Non profit organizations, for example, often only qualify for grants or donations if they are able to provide proof that they are able to manage their funds responsibly. Business owners may need an independent report in order to tender for large contracts or when they are trying to attract new investors.
The report from an auditor is not necessarily a bill of clean health. It must be remembered that the report covers only a very specific period and it does not include information on any financial matters outside that period. Furthermore, auditors can only examine records that are presented to them. If information is withheld, the report may not be a true reflection of the finances of the company.
Choosing an auditor should be done carefully. Many organizations have long term relationships with their chosen auditors. In this way the reports produced are based upon a long period of intimate knowledge about the affairs of the organization. Auditors are required to be licensed and registered before they are allowed to practice. An audit can only be accurate if all relevant documents are made available freely and transparently.
Auditors are not focused upon exposing their clients. They are responsible to report honestly and objectively about the status of the client. If they discover anything untoward, they report to their client, who must then take appropriate steps. In some cases, especially where criminal activity is found, auditors are required to report to the authorities.
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