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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• Helpful Payroll Related Articles