The Three Types of Audits that Businesses and Not-For-Profit's should do.

Today's joke:

What do you call an accountant who is seen talking to someone? Popular

We are going to discuss three types of auditing. Every business should have these done at least annually.

First, we will look at an operational audit. The evaluates the efficiency and effectiveness of any part of an organizations' operating procedures and methods. At the completion of an operational audit, management expects recommendations typically for improving operations. For example, auditors might evaluate the efficiency and accuracy fo processing payroll transactions in a newly installed computer system.

Another example is assessing the efficency, accuracy, and customer satisfaction in processing the distribution of letters and packages. These are just a couple of examples the deal with an operational audit and can be done by a company that provides management consulting. A & C Bookkeeping Services can provide such services.

Second, we will look at compliance audit. This audit is conducted to determine whether the auditee is following specific procedures, rules, or regulations set by some higher authority. Following are examples of compliance audits for a private business.

  1. Determine whether accounting personnel are following procedures prescribed by the company controller.

  2. Review wage rates for compliance with minimum wage laws.

  3. Examine contractural agreements with bankers and other lenders to be sure the company is complying with legal requirements.

Many private and not-for-profit organizations have prescribed policies, contractual agreements, and legal requirements that may require compliance auditing.

Results of compliance audits are typically reported to management, rather than outside users because management is the primary group concerned with the extent of compliance with prescribed procedures and regulations.

Third, we will look at the financial statement audit. This audit is conducted to determine whether the financial statements are stated in accordance with a specified criteria. The criteria for financial auditing are from the Generaly Accepeted Accounting Standards, although auditors may conduct audits of financial statements perpared using the cash basis or some other basis of accounting appropriate for the organization.

Disclaimer: This blog is for information purposes only and is not intended to provide investing, accounting, tax or legal advice and should not be relied upon.

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