Audit Inconsistencies: How Small Businesses Can Address Them
Auditing is an essential aspect of a business. Not only does an audit provide credibility to a series of financial statements and increase shareholder confidence, but it also enhances the internal controls and systems of a company. The audit can be carried out internally by the company’s employees or externally by an audit company.
Generally, in terms of auditing, the main objective of businesses is to show that their financial statements are accurate and fair and have been appropriately prepared according to accounting standards. However, sometimes, it cannot be avoided that a company will be confronted with audit inconsistencies.
Audit inconsistencies or findings usually arise when an auditor identifies problems during random testing of transactions for a variety of factors. These inconsistencies are then disclosed in a report submitted by the auditor to the company’s management.
If you are a small business owner or manager, this article is especially for you. Read on to find out how you can effectively address the inconsistencies that may be found in your audit report.
Step 1: Have a discussion with the auditor
The first step to addressing any inconsistency that may be disclosed in your audit report is to have a discussion with the auditor about any financial or initial operational concerns you have. This includes recognising and admitting any issues you know exist and are yet to be resolved.
Suppose the resolution of the issues has been delayed because of the management’s lack of knowledge or expertise in the area. In that case, you can ask for the auditor’s advice and guidance regarding the most suitable course of action to take. Having a proactive stance on determining and correcting business problems makes the audit process more effective and less complicated for both the auditor and the business.
Step 2: Come up with a corrective action
After identifying and acknowledging existing business problems, the next thing to do is to tackle the audit report’s findings in detail. Usually, all audit findings are presented to the management in an audit report at the end of the auditing process. Before the audit report is issued, an effective auditor will likely discuss the audit findings as they are identified in order to obtain feedback and analyse your proposed course of action.
When the audit report is done and issued, it is highly advised that you include a proposed corrective action for every audit inconsistency identified in the report. As much as possible, provide the auditor with some pieces of documentary evidence showing the problem has been or is already being corrected.
Step 3: Implement the corrective action
Implementing corrective action is the most crucial step to resolving inconsistencies in an audit report. Once you have already come up with a comprehensive course of action to take, it would be best to start implementing it while making sure to retain documentation on the implementation process and the results.
As you implement the necessary corrective action to address the financial or operational problems identified during the audit, it is essential to carefully document the work performed and the performance outcomes. This documentation will come in handy when the auditor conducts a follow-up audit to see if the audit problems have been resolved. It can also protect your small business from any potential legal dispute that may arise.
Audit inconsistencies are indeed inevitable since financial and operational issues are common in any business. Fortunately, addressing these inconsistencies is generally easy if the business’ management acts proactively. If inconsistencies have been included in your audit report, be sure to follow the steps shared in this article, as they will help you resolve your business issues more efficiently.
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