Things to include in a financial audit checklist
A financial audit is an important process to go through that can serve a few purposes for an organization. A financial audit can be used to help a business to identify ways to improve profitability, it can be used to ensure that the company is operating in compliance with relevant regulatory agencies and protect all stakeholders from fraudulent behaviour.
A financial audit is, essentially, a process to make sure that a business is operating in a smart, legal and responsible manner financially. These audits are generally carried out by an impartial committee in the business or a financial audit can be done externally. So, what are a few of the things that need to be included in a financial audit?
Review of budgets & financial statements
Every business needs to have a budget created annually with targeted income and expenses along with financial statements that include the balance sheet, income statement, statement of cash flows and statement of owners’ equity. These documents need to be assessed in an audit to look for accuracy, compliance and accepted accounting methods.
Revenue & sale costs
There should also be tests carried out of the revenue and cost-of-sales entries, which will include proving the shipment of inventory or service delivery. Cost-of-sales entries need to be timed and assessed for accuracy with the appropriate revenue entries.
Trial balance
The trial balance is the values of all accounts as a timely snapshot. During the audit, the procedures should confirm the total balance with supporting documentation that will support the balances of accounts receivable and payable. You can confirm inventory and fixed assets by item, quantity and value while cash balances can be confirmed with bank statements.
Accrual accounts
To establish balance sheet reserves for pending payments, accruals need to be established. This will include the amount that is owed for wages, bonuses, commissions, sick-day earnings and other pending payments.
Expense approvals
The audit should also look into the levels of approval and written procedures for expenses. The use of a double signature should be required for the release of cash and checks, including payroll expenses.
These are a few of the main checks that need to be included in a financial audit. Organisations should carry out financial audits at least once a year, which will help to ensure that you are operating legally and responsibly from a financial standpoint and could help you to make improvements to your company’s bottom line.