The one thing that all legal entities have in common is that they deal with money. In many instances, this money belongs to investors or the tax payer. In other cases the organization administers the money on behalf of the public, as is the case with charities. It is vital to make sure that the funds of an organization are managed honestly, fairly and within the framework of the law. That is why financial audits are so important.
Auditing is necessary because there is a need to have checks and balances in place. If this is not the case, the organization is vulnerable to fraud and theft. Irresponsible management of money can cost businesses dearly and it is vital that they are able to recognize problems before they become serious. The authorities also need to be reassured that all relevant laws are observed.
Auditing is always conducted by an independent professional that has no ties to the organization that is being audited. The professional examines all the records of the organization and then produce a report. The report includes explanatory notes and a summary of the accounting policies of the organization. Normally, the report is presented as part of the annual report of the organization and in many cases it becomes available for scrutiny by the general public.
The auditor is empowered to examine all aspects of the business. This includes each and every transaction, policies and procedures and even the level of good governance displayed by management. Business strategies are also studied and great care is taken to ensure that the business has reported and recorded all their business dealing. In fact, every aspect of the business that can influence its monetary status can be scrutinized.
Sometimes even organizations and businesses that are not legally required to do so also hire the services of an auditor. In some cases the owners of a company suspect theft or illegal dealings. Many charities submit to auditing because they need to show their patrons that they are handling their funds responsibly. In bankruptcy cases the applicant is also often required to be investigated by an auditor.
The report from an auditor is not necessarily a bill of clean health. It must be remembered that the report covers only a very specific period and it does not include information on any financial matters outside that period. Furthermore, auditors can only examine records that are presented to them. If information is withheld, the report may not be a true reflection of the finances of the company.
It is important to choose an auditor that operates independently and that has a reputation for objective reporting. No auditor can produce a valid report unless all records and documentation is made available for scrutiny. Many businesses prefer to use the same auditor year after year, because a long term relationship allows the auditor to report with full cognizance of the history of the business.
Auditors are not focused upon exposing their clients. They are responsible to report honestly and objectively about the status of the client. If they discover anything untoward, they report to their client, who must then take appropriate steps. In some cases, especially where criminal activity is found, auditors are required to report to the authorities.
Auditing is necessary because there is a need to have checks and balances in place. If this is not the case, the organization is vulnerable to fraud and theft. Irresponsible management of money can cost businesses dearly and it is vital that they are able to recognize problems before they become serious. The authorities also need to be reassured that all relevant laws are observed.
Auditing is always conducted by an independent professional that has no ties to the organization that is being audited. The professional examines all the records of the organization and then produce a report. The report includes explanatory notes and a summary of the accounting policies of the organization. Normally, the report is presented as part of the annual report of the organization and in many cases it becomes available for scrutiny by the general public.
The auditor is empowered to examine all aspects of the business. This includes each and every transaction, policies and procedures and even the level of good governance displayed by management. Business strategies are also studied and great care is taken to ensure that the business has reported and recorded all their business dealing. In fact, every aspect of the business that can influence its monetary status can be scrutinized.
Sometimes even organizations and businesses that are not legally required to do so also hire the services of an auditor. In some cases the owners of a company suspect theft or illegal dealings. Many charities submit to auditing because they need to show their patrons that they are handling their funds responsibly. In bankruptcy cases the applicant is also often required to be investigated by an auditor.
The report from an auditor is not necessarily a bill of clean health. It must be remembered that the report covers only a very specific period and it does not include information on any financial matters outside that period. Furthermore, auditors can only examine records that are presented to them. If information is withheld, the report may not be a true reflection of the finances of the company.
It is important to choose an auditor that operates independently and that has a reputation for objective reporting. No auditor can produce a valid report unless all records and documentation is made available for scrutiny. Many businesses prefer to use the same auditor year after year, because a long term relationship allows the auditor to report with full cognizance of the history of the business.
Auditors are not focused upon exposing their clients. They are responsible to report honestly and objectively about the status of the client. If they discover anything untoward, they report to their client, who must then take appropriate steps. In some cases, especially where criminal activity is found, auditors are required to report to the authorities.
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