An audit is designed to evaluate and verify the effectiveness
of company’s financial operations. It can also help the management or owner detect
circumstances that could lead to financial problems in the future.
But
the audit strategies used on bigger companies may not be applied for audits of
a small business. Big companies can rely
on their own internal auditors to provide assistance. But small businesses, given a limited budget,
have limited personnel. With this, auditors
of a small business might also need to adjust their audit strategy.
Auditors
of a small business may encounter some challenges that affect their audit
strategy since small businesses face certain challenges in executing effective
internal control, particularly if management of the business perceives internal
control as something to be added on rather than integrated with core processes.
Audit
in a small businesses is very important so as to minimize the potential risks
of material misstatements in the financial statements whether it is caused by
error or fraud.
So
what do Auditors need to pay attention on auditing a small businesses?
First, auditors should review the
systems and examine financial documentation whether it is being processed in a
timely manner. Without timely and reliable information, accounting records can
become unreliable that may create discrepancies in a company's financial
records.
Second, auditors should identify and
review each component of the company's accounting system, including journal
entries, T-Accounts, general ledger and financial statements. Analytically work through the accounting
system to ensure that all accounts are present, that all journal entries are
posted to the general ledger in a timely manner and that the system has the
ability to correct human errors, such as calculation errors.
Third, auditors should check into
the company's internal controls policies to measure the level of security they
provide from theft and fraud.
Fourth, auditor should compare
internal records of cash possessions, income and expenses against external
records. The auditor should check the
company's stored external records and compare selected transactions against
internal records. For example, a purchase
receipts sent from suppliers for a certain month will be compared against
internal purchase records, or compare cash register tapes against revenue
recorded on the books.
And finally, auditors should analyze
the company's internal tax records and official tax returns. Auditors should also take a little extra time
to review the range of credits and deductions claimed on the most recent tax
return, looking for areas of dubious reporting, such as inflated expense
numbers.
Efficiency in audit is achieved through
a careful audit planning. One specific
example is that auditors review the prior years’ workpapers to familiarize
themselves with client issues and to look for past inefficiencies and possible
improvements. Another factor that contributes
to audit efficiency is Auditors’ independence and objectivity. Auditors should be free from bias, conflict
of interest and undue influence of others to override professional judgements
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