Small businesses tend to have multiple aspects to cover as well for better decision making. Among a few things, the most technical aspect for small businesses is book-keeping and other tax compliance.
Small businesses ought to be audited too when they have business loans or their turnover is above the threshold of to be audited.
Small businesses have to take pleasure in the adjustment of accounting treatment. Small businesses may undergo internal and external audits as per the requirement of the industry they operate in.
Some small businesses may need to produce a positive audit opinion in order to secure a business loan.
Concerns about employee loyalty and operational inefficiency also lay the major foundation for small businesses to get its book audited.
Like all sizes of businesses, small businesses should have both internal and external audits conducted to assess internal control policies and procedures.
If the books are prepared using an online accounting program, this will fasten the audit process.
External audit opinion helps small businesses to win the confidence of prospective investors and new business partners.
Types of small business audit and procedures
Various types of small business audits shall include:
Financial Statement Audit
This deals with providing reasonable assurance about financial information. Such audit involves testing of books of accounts, processes with accounting processes.
This audit ensures that businesses are in compliance with regulatory requirements.
The financial statement audit includes an audit of the income statement, balance sheet, cash flow statement, and the related disclosures to accounts.
This audit deals with providing verification of a business financial or other data.
Financial Statement Review
This audit provides assurance that if the business is running efficiently and also recommends the areas of business that would require improvement.
Such an audit is useful to some lenders and even bonding agents in rare cases.
The objective of the auditor is not to observe employees. But it gives a sense of the environment in which the employee operates. This helps in determining the strength of an internal audit.
The auditor shall, therefore, observe the employees perform their daily tasks to understand the process laid down by the small business being audited.
It may in fact help the business to increases efficiency when the auditor would recommend the ways to increase the performance realistically.
Review of Management Meetings
The auditor shall review each minute of the meetings. This would help them to identify the issues that are relevant to the organization.
There are various situations in the business that can affect the financial performance of small businesses. This can only be identified by the minutes of frequent management meets.
The auditor should be able to check whether resolutions made in such meetings are actually being implemented.
Verification of Documents and Records
The verification process consists of thorough and in-depth analysis and examination of physical and electronic records of small businesses by and auditor.
The records include financial statements, receipts, and invoices. The auditor shall check the transactions for accuracy and correctness of such documents.
In small businesses, there are not so many transactions and hence, time scope enhances the size of audit.
The auditors may decide to completely verify all the records if possible, rather than using random sampling.
Examination of Tangible Assets
Tangible assets are those assets that have a physical existence. The auditing procedure would naturally require physical inspection of all the tangible assets of an organization.
The auditor shall compare the company’s asset inventory register with physical assets and ensure the existence of the asset.
The various transactions related to assets like purchase vouchers along with maintenance vouchers and authority can also be examined by the auditor.
The auditor may also need to make inquiries with employees to get knowledge of business and the departments.
Further, there may be a need to obtain third party verification about balances and transactions. These inquiries complement the major audit procedures in small businesses.
The auditors often indulge in the very reliable process of calculation of balances to generate audit evidence and to complement other balances as well.
The calculation involves the repeat computation of balances of financial statements and checks their accuracy and correctness.
Scanning means reviewing the books of account rigorously. Scanning aims to look for errors, omissions, and unusual entries in the books. During the process of scanning, the auditor shall try to locate unusual items as much as possible.
Further, the unauthorized debits on revenue accounts and fraudulent credits on expense accounts shall also be checked and properly dealt with the management.