Internal vs. External Audits: What You Need to Know

No one wants to hear that their business is being audited. But audits aren’t just a formality — they’re key to helping you understand the financial health of your business.

Feeling a bit lost when it comes to audits? You’re not alone. We are breaking down the basics of internal and external audits and sharing how proactive internal audits can set your business up for success.

What is an External Audit?

An external audit is a review of a company’s financial records and processes by an independent auditing firm. Publicly traded companies generally require this type of audit, but private businesses can also voluntarily conduct it for external stakeholders, such as investors or lenders, to ensure the accuracy and reliability of a business’s financial statements.

External audits usually happen once a year and involve reviewing financial records, internal controls, and other relevant documents to ensure they meet accounting standards and regulations. The auditor’s report shares the results, boosting stakeholders’ confidence in the company’s financial information accuracy.

Benefits of Working with a CPA for External Audits

As external audits are conducted by independent third-party auditors, it’s important to choose a reputable CPA firm to conduct the audit. Working with a CPA for external audits comes with many benefits:

1. Expertise and Knowledge: CPAs have in-depth knowledge of financial reporting standards and regulations, ensuring that your business is compliant.
2. Efficiency and Timeliness: A CPA firm will conduct the audit efficiently, minimizing disruption to your business operations while meeting deadlines.
3. Objective Perspective: As an outside party, CPAs provide an unbiased perspective on your company’s financial situation, identifying potential issues or areas for improvement.
4. Improve Investor Relations: An external audit by a reputable CPA firm can increase investor confidence in your business’s financial statements.
5. Evaluate Internal Controls: CPAs will also assess the effectiveness of your company’s internal controls, identifying any weaknesses and providing recommendations for improvement.

External audits are crucial for good corporate governance. They give stakeholders confidence in a company’s financial reporting. Working with a group of skilled auditors ensures that audits are done well and provides helpful insights to improve your business’s financial health.

What is an Internal Audit?

An internal audit is a review of your business’s financial processes and systems conducted by either an internal team or by experienced consultants. Its purpose is to evaluate the effectiveness, efficiency, and compliance of your company’s internal controls.

Internal audits are typically conducted on a regular basis by people who know the company’s operations and procedures inside and out. They focus on specific departments, functions, or processes within the organization to make sure they are operating effectively and efficiently.

How Internal Audits Can Help Your Business

You don’t want to wait around for an external audit to find out there’s something wrong. Internal audits can catch issues before they become real problems through risk assessment and review. By conducting regular internal audits with an experienced financial consultant, you can:

1. Identify Issues Early: Spot and address potential issues before they become larger problems during an external audit.
2. Improve Compliance:  Internal audits can help businesses ensure they are meeting legal and regulatory requirements, reducing the risk of penalties or fines.
3. Prevent Fraud: Internal audits can identify potential fraud or errors by reviewing financial processes and internal controls. Even announcing an audit to employees can prevent them from committing fraud.
4. Enhance Financial Accuracy: Regularly verify financial records to ensure they are accurate and well-documented.
5. Build a Strong Control Environment: Strengthen internal controls to support reliable financial reporting and efficient operations.
6. Boost Confidence: Demonstrate to stakeholders that your business takes financial integrity seriously and is proactive in maintaining high standards.
7. Spot Areas For Improvement:  Identify areas in the business that can be enhanced and devise strategies to make these improvements.

You can’t make the right decisions for your company without the proper information. That’s why we conduct internal audits. At SME CPAs, our auditors work with your team throughout the year to develop a full understanding of your business’ risks, systems, internal controls, and processes.

We use this information to empower your company with timely and accurate financial data for decision-making. Then, our trained auditors use it to identify areas with potential savings, introduce cost controls, or uncover unseen opportunities.

How SME CPAs Can Help

Annual audits, whether internal or external, are essential for your business. They ensure that your financial records are accurate, your business practices are efficient, and your operations comply with regulations. By keeping strong internal operations, your business will be ready for any audit. At SME CPAs, we can help take the stress out of annual audits and tax compliance.

Choosing our team gives your business experienced expertise, thorough assessments, and strategic insights to drive continuous improvement. Our dedicated auditors bring a wealth of experience and a deep understanding of all business types to offer you custom auditing solutions. We take pride in our thorough and transparent processes, ensuring all our audits meet the highest standards of accuracy and compliance.

With SME CPAs, you’ll get clear and confident financial reporting and actionable recommendations to improve your operations. Whatever your audit needs, we offer a full, flexible set of services with unparalleled experience. Get in touch with us today to learn more about how we can help your business thrive.