Auditing is important when it comes to ensuring the accuracy of a company’s financial records. There are several different types of audit, and while they are key to avoiding financial errors, they can be time-consuming – especially when a company has to conduct them itself.
Let’s look at the seven most popular types of auditing.
- Internal Audit
Internal audits are common, as they are really more of a group of audits than a specific type. The term refers to any audit that is conducted within a company, and includes compliance audits, payroll audits – which we’ll look at in more detail later – and performance audits. Internal audits help companies to gain a better understanding of what goes on within them and highlight any issues or areas of improvement.
- External Audit
As the name suggests, external audits are conducted by someone outside of the company, for example, government agencies or an auditing company. They are used to check whether a company is meeting legal requirements, such as paying taxes and accurately reporting financial information. As with the internal audit, external audit is an umbrella term that covers things like tax, statutory and financial audits.
- Financial Audit
A financial audit is an investigation into a company’s financial status. The focus is on the accuracy of the company’s finances, during which the auditor verifies records including transactions and investments. This is typically carried out by an external auditor, who will share the results with the company once it is completed.
- Tax Audit
The purpose of a tax audit is to assess the accuracy of a company’s tax returns and check that their taxes have been paid correctly. This is done to ensure that the company is not over- or underpaying. This type of external audit could result in a company being refunded if they’re paying too much tax, or being asked to pay any additional tax they owe.
- Payroll Audit
Usually conducted internally, payroll audits are designed to make sure that everyone within a company is being paid correctly and there are no mistakes in the payroll. The audit looks into tax withholding and also checks the accuracy of employees’ information, such as their addresses, working hours and wages. Payroll audits should be carried out at least once per year to ensure the payroll remains accurate and any errors can be corrected promptly.
- Investigative Audit
An investigative audit is initiated in response to unusual or suspicious financial activity within a company. It generally focuses on an individual – tracing them may be part of the audit – and seeks to uncover any fraud that may have been committed. The audit will then be used to gather evidence if this is believed to be the case.
- Statutory Audit
A statutory audit is a type of external audit. It is conducted to check whether a company’s financial statements are accurate, and that they are complying with the government’s regulations and all legal requirements for a business. The auditor will usually ask to see bank statements and information such as the number of customers a business has.
Though this all might seem like an arduous task, automating your invoices and invoice audit with a solution like Xelix streamlines the process. These applications offer an easy-to-use system to help your company’s financial team stay on track, complete audits, reduce risk, and always ensure that you stay compliant.
