Economics/Business

What is an audit/4 reasons/importance/audit models/how to prepare

Auditing is a systematic activity that aims to evaluate the company’s records, as well as various factors of its operations such as systems, finance, management efficiency, etc. audit

Whether you are a business owner or a manager, audits are certainly part of your daily life, or at least they should.

Despite this, not everyone is aware of what an audit is and what its purpose is within a corporation.

Of course, we see this term applied to large companies and even public bodies, often linking them to fraud and corruption. However, this can be applied to any company and in different situations.

This is a necessary process for the healthy growth of your business, exposing possible errors in the processes and acting at all levels with due transparency and security .

Therefore, to be competitive, it is necessary to carry out audits and monitor the activities developed, make strategic adjustments and monitor changes.

Curious to know more about the world of auditing in companies? In this text, we will talk about what an audit is, its objectives and how to carry out this work.

What is an audit

Before discussing more advanced issues on this topic, we need to understand the concept of auditing.

Auditing is a careful and systematic evaluation of the activities carried out within a company or body .

The main objective of this operation is to understand if the processes are being developed as expected in their conception.

It is common for the act of carrying out an audit to be associated with illicit actions, after all, we are constantly exposed to this scenario in the news, for example. However, it is not so.

On a day-to-day basis, this activity has a goal that is very much in line with that of the company itself: to optimize processes in order to increase their efficiency, profitability and correct errors .

The identification of fraud is also fundamental within these companies. However, carrying out an audit for this purpose turns out to be something less routine.

What does an audit do?

An auditor, when carrying out his activities, checks actions, documents and processes in order to obtain some information or certification.

Exploring the meaning of the word, we have a clearer notion about this activity: to audit means to examine, adjust, correct, etc.

This is a thorough review of an entity’s financial—also called an accounting audit—and/or operating records. 

It is also possible that an audit is carried out on a specific project that has been or is being carried out in the company.

In the end, the role of the audit is to build credibility through complete transparency .

Not only, the identification of deficiencies in the internal control and financial system allows a better adjustment by the company to these adversities. 

In this way, we can also say that auditing is essential for companies to grow in a healthy way.

Summarizing the role of auditing within a company:

  • evaluate the company’s controls;
  • confer methodological standards;
  • verify if the company is following the accounting norms ;
  • provide transparency to data and security to users who depend on that data.

4 reasons to audit your company

The perfect scenario is one where a company is created with the best processes already defined. However, this does not exist.

All procedures must be reviewed and process performance can always be optimized. 

Not only that, auditing is a process that prepares the company for the future by identifying and correcting current problems.

If you doubt that, we’ve separated some of the main reasons why auditing can be an excellent idea for your company. See below!

1. Provide an objective view

Many managers make the mistake of thinking that their own point of view is objective. 

When you’re inside the processes — or rather, when you’re part of the team that designed those processes — it’s practically impossible to have a clear vision .

Therefore, the auditor must be out of that context to have objective insights and, in a way, out of the box.

And this is where problems start to appear. That’s because smaller companies say they don’t have the money to hire an external auditor. However, this is not necessary. 

A tip is to choose a specific employee and train him/her punctually to audit different departments. In this way, it is possible to have this “external” view.

2. Increase the efficiency of operations

When planning internal procedures , it is common to think that everything will happen as it was put on paper. 

However, this rarely happens. Not infrequently, along the way, managers are faced with processes that need adjustments.

Here the audit makes all the difference. We said above that it is impossible to have an objective view when being inserted in the operation. In this case the situation is the same.

As it lacks objectivity, it is important to rely on the point of view of third parties in order to identify bottlenecks and ensure that the corporate organization is designed based on processes and not people.

A very common scenario is a key individual leaving the company and leaving everyone wandering around at a loss. 

It is at these times that a well-designed process makes all the difference to the company’s progress.

3. Check the financial numbers

A company that does not have minimally organized finance has a ticking time bomb in its hands.

So, if your cashier doesn’t match the financial statements, this is a problem that deserves everyone’s attention.

The organizing process can take months, but it is necessary work. Something that can help in this activity is, yes, the audit! 

Through a systematic analysis of your company’s accounting documents, it is possible to identify where the errors are and look for ways to definitively resolve them.

Of course, performing a financial audit is not a simple task. Probably, in this case, it will be necessary to count on a professional to carry out this activity.

4. Prepare the company for the future

One of the positives of putting processes to the test is making them ready for the future. 

Escalating a flawed process is a recipe for a real headache. 

Therefore, trying to identify in advance the possible problems that will be found in the future is an excellent way to avoid these setbacks .

Not only that, the audit process is something that must be deeply embedded in the organizational culture of the business. 

After all, the employees themselves must be open to the idea of ​​being always under review.

Who needs to do an audit

Auditing is not just an activity developed for organizations’ own interests. 

Large companies are required to hire external and independent audits periodically .

It is important to point out that, for this law, a large company is considered to be an organization that has, “in the previous fiscal year, total assets greater than BRL 240 million or annual gross revenue greater than BRL 300 million .”

There are still specific cases:

  • financial institutions , including banks and investment funds that must be audited every six months;
  • publicly traded companies , which must be audited every year.

Companies that do not fit in these cases can also hire an external audit .

You might even think this is a real waste of money, as the in-house team is able to validate all the data.

But put yourself for a moment in the role of an investor. Would you rely more on self-declared financial data or on reports issued by an external audit?

Well, by putting its own data to the test, the company gains credibility ! And this bonus doesn’t just stop at investors. Banks and suppliers also tend to give these companies greater reliability.

The importance of an audit

Auditing is the analysis of financial statements and administrative records. It is a highly complex work, but it brings several benefits to the company.

Small and medium-sized companies, for not having the obligation to carry out the audit, end up leaving this activity aside. 

However, this decision is often derived from a lack of understanding about the activity itself. 

This is because it is very common to be exposed to the concept of accounting audit. However, as we have already said, it goes far beyond this aspect of the company.

A well-done audit helps to identify the mistakes made by the organization and correct them in time , preventing them from becoming a snowball downhill.

Problems such as overspending and inability to complete projects can be evidence that the company does need a more careful evaluation .

But these signs do not stop there. We can include a high turnover rate , a drop in the number of customers, excessive spending, unexpected results, etc. 

These are all issues that can be identified and subsequently resolved through an audit.

Of course, it alone will not solve all the issues. But it is a fundamental step towards starting to understand what the real problems are and addressing them appropriately .

This is the first part of a much more elaborate plan, it is the stage that gathers the necessary data, thus feeding the decision-making process, the dissemination of good practices, the elimination of small routine problems and much more.

It is important to make it clear that this is a process that encompasses the entire company and not just the fiscal or financial part. 

All the gears need attention to ensure that the machine — the company — is able to run at full throttle without losing control.

The audit models

In this content, we talk a lot that there are several types of audit. It’s finally time to talk a little more about this topic.

We will start by differentiating the audit models and showing what each one of them is for. 

These are two models that you’ve certainly heard of: internal and external audit .

To know when to use each of these, it is important to understand your goals . See more about it below!

What is external audit

The external audit is carried out by independent auditors, that is, by professionals who do not have any type of relationship with the company being evaluated.

This type of evaluation is normally used when the results must be free from any bias, that is, free from the interests or influence of the company .

Here it is common to hire external auditors to evaluate the financial statements, making it possible to find fraud and errors that, if evaluated by employees of the business itself, would be more difficult to find.

This validates the security of the company for both investors and shareholders, validating accounting, tax and many other records. 

This is especially important for companies that trade their shares on the stock exchange.

The main objective of the external audit is to grant a certification to the audited area, ensuring that the company follows all good governance practices .

What is internal audit

On the other side of the coin we have the internal audit, as the name already shows, it is carried out by a team of collaborators who have been trained to perform this task .

Unlike the external audit, the objective is not to certify the reliability of the data presented by the company, but to act as an ally of the company’s management, ensuring compliance with internal rules and policies.

In addition to this assessment, the internal audit also assesses the company’s internal controls, highlighting possible weaknesses in the processes . Thus, serving as the basis for a series of improvements.

Therefore, the main difference between these audit modalities is that one of them, the external one, is concerned with proving the data while the other wants to identify errors and generate the data for Business Intelligence actions, for example.

To make the differences even clearer, check out a summary below.

The types of audit

Now we will talk more about the types of audits themselves, which can be performed by internal and external professionals. 

Check below the different areas of your company that can be audited and how each modality works.

accounting audit

The accounting audit is perhaps the best known, especially because of the obligation of large companies to prove their financial statements.

The main objective is to attest to the accuracy of accounting records , identifying possible flaws and even fraud and other irregularities. 

The auditor must consider accounting documents, perform internal inspections and obtain external data in order to produce a report .

The result of this process is greater security and transparency, since it will be possible to identify the company’s accounting problems, their causes and consequences.

Financial audit

Many may think that financial auditing and accounting are synonymous, but it is not quite so. 

The first aims to assess financial controls that can also be operational. 

An accounting analysis aims to verify that the accounting documents are correct.

The focus of this type of audit is on financial management , assessing whether the company’s resources are being applied efficiently and profitably.

Furthermore, through this type of assessment, bank statements are compared with accounting records and cash flow. This is where potential scams are exposed.

It is important to fully understand the difference between accounting and financial auditing. We made a short summary so you never forget:

  • accounting audit : evaluates the financial statements: balance sheet, cash flow statement and income statement for the year;
  • financial audit : responsible for validating the application of the enterprise’s resources.

Tax and tax audit

Having tax inconsistencies is a nightmare for many entrepreneurs, after all, the Federal Revenue is one of Organs most efficient bodies in Brazil.

In this sense, the fiscal and tax audit is completely focused on analyzing whether the taxpayer has complied with all its tax obligations at the municipal, state and federal levels .

The person responsible for auditing the company will assess whether all taxes were paid on the correct dates, whether mistakes were made in these processes and, if so, how to fix this problem once and for all.

The main taxes assessed in the audit are:

  • COFINS : Contribution to the Financing of Social Security;
  • CSLL: Social Contribution on Net Income;
  • IPI: Tax on Industrialized Products;
  • IRPJ : Corporate Income Tax;
  • ISS: Tax on Services of Any Nature;
  • PIS: Social Integration Program;
  • SPED ECF: Tax Accounting Bookkeeping
  • SPED ICMS: Digital Tax Bookkeeping.

It is also worth differentiating between tax and accounting auditing. Here the question arises: is it really necessary to separate? After all, taxes are detailed in the financial statements.

The main objective of the tax audit is to assess whether tax obligations are being paid within days — in other words, it assesses the company’s tax planning. 

On the other hand, the accounting audit has the objective of evaluating information related to corporate assets.

environmental audit

Companies from different branches must carry out the environmental audit. It is a process that evaluates the procedures for environmental protection of a company .

Assessment is also a key step towards obtaining ISO 14001 certification . 

This is an ABNT regulation that deals with the structure to manage the impact on the environment and build a system to respond to environmental changes.

Within the company, the audit shows at which points the business must change to adapt to technical standards and current laws. 

But you don’t have to limit yourself to government rules. A company may want to optimize its processes in order to reduce its negative impacts on the planet.

In these cases, environmental auditing is a great way to prove environmentally correct actions through unbiased and credible reports.

One example is Apple, which has committed to being carbon neutral by 2030. 

Through independent audits, it is possible to verify if the company is really fulfilling its word or not.

operational audit

When we talk about operational, we are referring to data related to a company’s productivity and profitability. 

Therefore, the performance audit includes the following assessments:

  • operational costs;
  • growth;
  • patrimony;
  • financial situation;
  • projections for expansion;
  • financial viability of projects etc.

One of the purposes of undergoing this assessment is to identify whether the company’s resources are being used efficiently. 

This allows possible bottlenecks and errors to be properly addressed by management.

It is worth mentioning that not only the material and financial resources of the company are evaluated. Human resources also have their performance considered.

Therefore, the operational audit is an excellent way to check up on the company’s health status. 

This modality aims to identify those problems that are most likely to become serious diseases.

compliance audit

Compliance auditing is the right tool for any company that wants to comply with current laws and the most modern business practices.

We’ve just described each and every company that has the slightest desire to grow, haven’t we?

Compliance is a modern term that has never been used as much as it is today in organizations. 

This concept is important not only to ensure that the company complies with the law, but also to ensure that employees respect the business ‘s own code of ethics and conduct .

This is an especially important aspect for the company. Indirectly, employees are the representatives of the company, and their actions tend to reflect directly on it.

To carry out this control and be able to evaluate its employees, a company must have a code of conduct available to everyone and whose internal rules are clear.

Quality audit

The quality audit is an instrument normally provided for in companies that have a very well designed quality control system.

This type of analysis is carried out with the aim of identifying non-conformities through findings from the audit process and implementing improvement mechanisms .

With this in mind, we can say that the quality audit is much more preventive than problem correction. 

In this way, it helps prepare the company for the future. That’s why we mention this point as one of the reasons to carry out audits in your organization.

Any company that seeks the highest level of excellence in its products and services carries out quality audits.

Systems and IT Audit

The main objective of auditing systems and IT in companies is to assess the suitability of the technologies implemented in the organization’s day-to-day activities .

Here are evaluated:

  • the performance;
  • systems development; 
  • the infrastructure; 
  • the operations;
  • the controls;
  • IT procedures;
  • information security.

In this way, it is possible to create evidence to attest or not to the effectiveness of the systems adopted by the company. 

This type of audit is especially suitable for highly technological companies that use integrations with the most diverse tools and that work with a large flow of information.

Not only that, with the modernization of legislation governing the management of digital data, it is more important than ever to ensure that your company handles this data in accordance with what the law provides.

How to prepare your company for an audit

Now that you know how auditing can help your company and the main areas that can be audited, let’s talk a little about how to get your company ready to receive auditors.

1. Insert into annual planning

A very efficient way to keep auditing the various sectors of your organization is to include the activity in the annual planning. 

Thus, everyone knows in advance what the intentions of the company’s management are.

2. Have clear goals

It is very important to involve all employees in this process . One way to do this is to share with all the reasons that drove the audit and what questions are expected to be answered.

3. Formalize the processes

In addition to involving employees, the role of each one within the company must be made clear . 

Therefore, investing in training, being always available for dialogue and offering constructive feedback makes all the difference!

4. Know what’s better: internal or external audit

During the text, we talk a lot about the purpose of audits. Therefore, before hiring a company or preparing a team to audit the company, know what result is expected of it.

Reinforcing the concepts: internal audit is for evaluation and data collection, while the external one will give credibility .

We hope we have answered all your questions about auditing and why this is an important activity for your company, no matter the size.

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