Regular, thorough audits are a very important tool for running a compliant, successful corporation. These audits help uncover problems that might have otherwise gone unnoticed, stopping them from evolving into serious issues. Corporate audits are thus typically handled and paid for by the corporation being audited to help them spot those types of problems. But why do corporations need to complete internal audits? And what exactly goes into an audit?
What is a corporate audit?
Well, in a nutshell, a corporate audit is simply a close examination of the practices of a corporation. However, there are multiple things that can be audited. Financial records, business decisions, regular operations, safety compliance, management – the list goes on and on. Publicly traded companies are also held to higher standards, and both internal and external auditors often refer back to the Sarbanes-Oxley Act, which was passed in 2002, when deciding whether or not a corporation is in compliance with the law. An internal auditor, however, is typically hired by the corporation to perform an audit, and an external auditor is an agent paid for by some outside organization, like the government.
Why should corporations audit themselves?
For publicly traded companies, internal auditing and reporting is required by law. The idea is that, if the CEO and board of directors are briefed on the findings of these audits, they cannot claim ignorance of any wrongdoings and can act quickly to solve problems before they get out of hand. But beyond legal compliance, an internal audit also help keep those who run the company aware of how different parts of the corporation are running. Of course if your corporation is made up of only ten employees and you, you probably have a good idea of what is going on. But as the company grows and you are forced to narrow your focus to running the business, these internal audits help keep you on top everything. They can also be invaluable for risk management, especially if you are in an industry where employees could get hurt on the job, like in construction. The last thing any business owner wants is to see their employees hurt, and safety audits help avoid accidents.
How do you perform an audit?
If a corporation is big enough, there is typically an entire department, headed by a Chief Auditing Officer, that is dedicated to performing corporate audits. Smaller corporations, on the other hand, typically do not have the resources for an entire auditing department. Instead, they hire a single internal auditor to look over their records. Alternatively, they can contract an outside business to send in their own auditor, who then acts in the same way an internal auditor would.
What do you do if they find something?
If the company is small enough, there shouldn’t be very many findings in the audit report, and what is found should be easily fixed. However, larger corporations may wind up with a list of issues. Part of the Chief Audit Officer’s job is to highlight critical issues and present their findings to the audit committee of the board of directors. Appropriate action is then taken to solve whatever problems need to be handled.
For publicly traded companies, corporate audits are one of the requirements for staying in compliance with the law. But even if your corporation isn’t traded publicly, it is still a good idea to have an auditor come in and take a look at your company to help you manage risk and avoid the types of problems that could seriously impact the state of your business.
All new entrepreneurs have the choice of incorporating or not. By not incorporating, you’ll get out of some hefty paperwork, though you’ll be missing out on some great benefits that come along with incorporating your business. If you are a small business owner and you haven’t gotten around to incorporating yet, here’s what you’re subjecting your business to:
