Financial Audit Types and How Best to Prepare

Audits can be stressful and even chaotic if you’re ill-prepared. However, if you’re organized and well prepared, with all the information and documentation you’ll need stored securely, then audits don’t have to create panic or stress in the workplace. The first step to preparing for audits is understanding what types there are, the organizations that administer them, and what these organizations expect.

Types of Audits

There are 3 primary categories of audits that are important to understand:

  • Internal
  • External
  • Third-Party

Internal

Internal audits are conducted in-house, usually within larger companies with multiple departments. The purpose of such audits is to help a company ensure they’re meeting their own standards of quality and excellence and to mitigate any risk that might arise from having gaps in their systems or procedures.

Internal audits are carried out by a trained employee whose job is not related to the tasks being audited. Some companies may also contract the audit out to a third-party consultant but still retain control over the audit, not being accountable to any overseeing organization with the results. The audit follows the below process:

  • Document
  • Report
  • Follow-up

During internal audits, things such as procedures, policies, and training documentation can be examined. However, personnel, employee-specific HR records, disciplinary records, and health records will not be included or subject to audit.

External

External audits are completed when one company seeks to do business with another within a contracted agreement. This second party usually completes this type of audit through an inspection or survey to determine the quality of the goods and services one company intends to offer the other.

The following requirements must be met to validate an external audit:

  • The initial audit must take before the contract agreement is executed and then every 2 years after that.
  • All aspects of the audit must be documented.
  • A system must be in place for follow-up audits (this can be done on paper or in person).

External, second-party audits help to assure quality systems and capabilities are properly in place, appropriately set the customer expectation, and cultivate consumer confidence.

During an external audit the following items will be under review:

  • Organizational charts
  • Quality or performance manuals
  • Licenses and accreditations
  • Standard operating procedures (SOPs)

As with an internal audit, personnel, health, HR, and disciplinary records will also not be included in an external audit.

Third-Party

Third-party audits are done by an entity completely independent of the organization receiving the audit. The purpose of this type of audit is to complete a certification, validation, or registration required by law.

This type of audit is typically done to ensure organizations are in compliance with state and federal regulations set forth by such groups as:

  • FDA
  • OSHA
  • EPA
  • IRS

Third-party audits include and exclude much of the same information and documentation as internal or second-party audits, but use the findings to certify an organization in one way or another.

Audit Sub-Types

System: A system audit examines the theory processes and procedures have been built upon, and includes a review the control of documents, training, or test equipment.

Process: This audit sub-type reviews an organization’s practices and validates how well communication is flowing between their systems.

Product: The product audit looks at the results of assessments and can serve as a final inspection.

Documentation: A documented paper trail of compliance or overview of systems can serve as a prequalification for many contracts, but an on-site inspection is usually best practice.

Audits by Industry

Many industries conduct audits that are specific to their own needed requirements and regulations as a means to ensure quality, compliance, or safety.

Financial Audits

Financial audits are completed to make sure that the information in a financial report meets specific criteria typically set by international standards. These audits usually take place at accounting firms and seek to add security and validity to their practices and services.

IRS Audits

IRS audits (or tax audits) are specific to the financials of an organization or individual. They are necessary to confirm that a person or company is reporting financials and tax information accurately and in accordance with any tax laws.

Quality Audits

Quality audits are completed internally or externally to make sure that quality management systems are in place and are working effectively.

Energy Audits

Energy audits are conducted on buildings through an inspection or analysis of their energy efficiency and usage.

Clinical Audits

Clinical audits are done on the systems in a medical setting to uphold compliance in patient care standards.

HR Audits

An HR audit reviews all the Human Resources systems and procedures to identity areas of improvement and ensure compliance with regulations.

How eFileCabinet Can Help

News of upcoming tax audits, or any audit type or reason, can create distress and cause much scrambling about to gather the needed paperwork and documentation required. For this reason, many organizations are using digital document storage and management systems to manage all their documents and eliminate this stress through optimized security and organization.

eFileCabinet is the industry leader in document management services and can help simplify audits by creating audit trails that are easy to store securely. Their systems also work seamlessly to automate document retention to save valuable time.

And all of this is done with the highest forms of security possible as they support 256-encryption and offer role-based securities.

Document management will save time, space, and money. Get started with an eFileCabinet demo today by filling out the form on this page to begin preparing for your next audit.

By | 2016-12-15T11:59:34+00:00 October 27th, 2015|
Subscribe to the Blog That Solves Office Problems

Free Demo

Request a Demo

Discover eFileCabinet

Chat with us about your needs and we’ll create a free guided test drive just for you.

Demo Form Arrow