A Summary of What an External Audit Includes: Questions and Answers

Ensure the health of your business;
hire a professional external audit.

Q: What does the process of an external audit for your business entail?

A: Basically, an external audit occurs once a year and focuses on the company’s performance and compliance. Accounting records are commonly examined in an external audit to make sure no errors exist in the financial statement, which is important for investors and regulatory requirements.

External auditors have no affiliation with the company, which offers the company an unbiased examination.

Here are some of the most frequently asked questions:

• Q: What is a Typical Audit Time-Frame?
  
  A: An external audit does not have a standard length. The audit goes on until the external auditors have finished. Generally, an external audit begins at the end of the company’s fiscal year, since that is when the accounting books are closed and financial statements for the year are prepared. The external auditors may communicate with internal auditors when any questions arise during the process, but the external auditors are not influenced by the internal auditors.
  
• Q: Is There any Pre-Audit Planning Needed?
  
  A: Before the external auditor begins, certain activities must be completed. The auditor must meet with management of the company to determine if any internal changes in control, procedures or other factors have affected company record keeping and reporting. Such factors can include changes in industry regulations, legal matters or changes in company structure and operations.
  
• Q: What Goes on for the Duration of the Audit?
  
  A: The reporting phase is the main part of the external audit, which is done on site at the company being audited. In this phase, auditors examine the company’s ability to record and process data accurately in reports, such as in financial statements. This is done by going through the records used to create the statement, or other documents, and re-creating them to see if they were created correctly by the company. During this phase, the auditors may request additional files or documentation from the company’s internal auditors or ask questions about how conclusions were drawn.
  
• Q: What Outcome Should be Expected as a Result?
  
  A: At the end of the audit, the external auditors prepare and deliver a summary report to the company. The summary report details all of the findings from the audit. This includes discrepancies found in the reporting and non-compliance of rules and regulations. The auditor findings offer the company a way to correct any discrepancies and become compliant before a regulatory body notices.

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READ MORE>> smallbusiness.chron.com: What Does the Process of Performing an External Audit Include?

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Characteristics of An Effective External Audit for Your Business

Consider the contributions of the
managament and audit committee
in the audit assessment also.

An effective audit truly challenges and tests the contents of the financial statements in order to form an opinion on whether they present a true and fair view. An audit must, of course, comply with all relevant auditing and ethical standards as well.

An effective audit must also include:

• An audit process tailored to the risks facing the entity, the business structure and the regulatory environment.
• An audit team that is technically strong, perceptive, intellectually curious and independent-minded — bringing an informed professional skepticism to bear on management’s approach and assertions.
• An audit approach that is based on an understanding of the control environment, including the role of information technology in supporting the financial reporting process.
• An audit culture that seeks continuous improvement and increased quality.

Fundamentally, an effective audit must deliver the right audit opinion, in which shareholders will have confidence.

Two more important characteristics are:

1. Communications and reports to those charged with governance that reflect the audit team’s thought processes and rationale for conclusions. These should discuss management’s approach, alternatives considered, relevant comparators and a clear articulation of the final conclusion.
2. Effective interaction with management and the audit committee throughout its performance — everyone must understand what the ‘audit issues’ are, why they are ‘issues’ and how they will be resolved.

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READ MORE>> ey.com (Ernst & Young): Assessing the Effectiveness of the External Audit Process

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Four Major Benefits of Hiring a Payroll Service Provider

The No. 1 task for a small business
to outsource is... yes, PAYROLL.

Are you considering hiring a professional payroll service provider for your growing business? 

Outsourcing payroll alleviates the time employees spend calculating payroll, determining tax obligations, preparing checks and providing management reports. Payroll firms can offer services such as automated signatures, envelope stuffing and direct deposit of checks. In addition, services such as retirement plans allowing employees to designate automatic deductions from their paychecks are available.

Here are the four major benefits of taking this step, in summary:

1. Accountability: Tax regulations are constantly changing, making errors more and more frequent. Payroll companies can offer services to file state and federal payroll taxes for your business, which alleviates the issue of knowing the latest tax code, filing deadlines, deposit requirements, tax tables, government forms or payroll software version.
2. Tax Expertise: According to the IRS, 40 percent of small businesses pay penalties each year for late or incorrect filings and payments. To avoid this, many payroll providers offer a tax guarantee, ensuring that customers will incur no penalties because the providers take responsibility any fines that may occur. This cost savings can greatly help in justifying the outsourcing of payroll services. (Keep in mind, however, that while the payroll company may assume responsibility for penalties, you may be liable for any insterest charges.)
3. Productivity: Leveraging the expertise of a payroll company can alleviate the time-consuming process of having your internal employees managing payroll. Outsourcing can free your staff's time to pursue more important revenue-generating activities. Because payroll management is a time-consuming activity, removing this burden can allow your employees to focus on more productive items within their realm of expertise.
4. Financial Reporting: Payroll firms can offer reports such as summaries on earning statements, payroll by departments, time sheets, expenses and a host of other reports.

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READ MORE>> SmallBusiness.chron.com: The Advantages of Hiring a Payroll Service Company

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Making a Sound Decision in the Selection of an External Auditor

Planning to procure a quality
audit requires time and attention.

Regardless of the type or size of business you are affiliated with—from a small local shop to a large corporation, from a neighborhood health clinic to a major hospital, from a grade school to a university—

an effective audit can improve your operations and possibly yield significant dollar savings.

Selecting a qualified auditor will help you achieve the benefits of an effective audit and help you avoid wasting resources on auditors that aren’t likely to produce a quality audit. If your responsibilities include hiring an independent auditor, do some research first that can help you make a sound decision and get the most for your money.

Companies and public entities should select auditors only after considering the following five basic steps for an effective audit procurement process:

1. Planning—determining what needs to be done and when
2. Communicating Audit Requirements and Soliciting Proposals—writing a clear and direct solicitation document and disseminating it widely
3. Selecting a Qualified Auditor—authorizing a committee of knowledgeable persons to evaluate the ability of prospective auditors to effectively carry out the audit
4. Writing the Agreement: Documenting Expectations—documenting the expectations of both the entity and the auditor
5. Monitoring the Audit: Ensuring a Quality Audit—periodically reviewing the progress of the audit.

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READ MORE/GET COMPLETE GUIDE HERE>> doa.alaska.gov (Intergovernmental Audit Forum):  Choosing an External Auditor

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Why Should I Get an External Audit?

Quality external auditors will take
the time you don't have to go
through your records with a fine-
tooth comb. Protect your company.

Question: What IS an external audit?

External audits are independent, unbiased reviews of your business’s financial records. You usually can contract an accounting or auditing firm to conduct this review. It can be an expensive exercise, but it has its benefits. While you may consider your organization’s controls and records to be flawless, an external third-party review can assure you if that is actually the case.

Three main advantages are outlined as follows:

1. Identification of Errors: As a business owner, even if you have the expertise to conduct your own audits, the responsibilities of running a business may prevent you from dedicating the time required to seek out errors and omissions in your financial records. An external audit will identify these mistakes and rectify them over the historical data. This, in turn, will provide you with clearer business records and data.
   
2. Internal Control Effectiveness: External auditors perform walk-throughs of each of your business processes and verify that approvals and authority checks are in place and working before a transaction lands in your financial records. They also determine that your computer systems perform correctly. This doesn't cover IT functions, but entails a check for controls in your systems to ensure that only authorized personnel perform certain tasks. The external auditor will advise you on how to address any issues they uncover.
   
3. Acceptance of Audited Statements: You may require a loan for your small business or a letter of credit to obtain merchandise. Banks and lending companies typically will require that you provide audited and reliable financial statements. Your company's net assets adjusted for goodwill can help you anticipate its current value, which can help you set a price for it, if you are willing to sell it. Similarly, tax authorities may be more willing to place reliance on your calculations for income or sales taxes if you present audited financial statements.

Audited financial statements indicate that you are a responsible business owner who practices transparency in your activities.

These acts of transparency contribute to the goodwill of your business. This can all be used easily to settle accounts, diffuse disputes among partners, and to prevent employees from committing fraud. 

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READ MORE>> yourbusiness.azcentral.com: "What Are the Advantages of An External Audit?

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Purchasing an External Audit for Your Non-Profit Organization

Here is how to get the right help
for your nonprofit's finances.

Have you started a nonprofit organization recently? The paperwork can be complicated and lengthy sometimes. The solution to much of this is to hire an external auditor.

With the increasing need for accountability, more and more nonprofits are turning to audit services. 

The accepted method of soliciting bids for auditing services is through a Request for Proposals (RFP). When designing one, keep the following ideas in mind:

• Describe the organization thoroughly. What is your mission? When were you founded? Are you a 501(c)(3) or some other type of nonprofit? What are your services? Are there special circumstances the auditors should know about (e.g., this is the first financial audit after a merger)? It is not necessary to include a copy of audited financial statements at this stage - you can make them available during pre-proposal interviews - but do include summary financial information such as revenues and their sources and balance sheet data.
• State what you need. State explicitly what you need the auditing firm to do. Some nonprofits want their auditors to audit the financial statements, complete the tax return(s), and file various financial reports, while others want only the audited financials.
• Request qualifications. Request that the auditors describe their qualifications to audit your organization. Explicitly link your needs with their qualifications, such as "Must have experience performing OMB A-133 audits."
• Describe your timetable, decision process, and selection criteria. Detail how you will make your decision, when, and on what basis. A formula with points for various criteria is bureaucratic but probably harmless. Best to be straightforward here. Note: By all rights, the auditors report to the board, so they should be the ultimate decision makers even if staff does most of the work.
• Select the firms you will send the RFP to. As much as possible, send the RFP to practitioners and firms you know to be skilled in your industry and appropriate providers of service. Be prepared to meet with each candidate in person (if they don't request a personal visit, ask yourself why).
• Provide enough time for the audit firms to respond. Give plenty of time for all parties concerned to do their jobs - four to eight weeks should work - and plan to put in at least as much time managing the process as any single candidate will in responding to you. Use the process as a management tool.

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READ MORE>> nonprofit.about.com: How to Purchase Audit Services for Your Nonprofit

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