Auditing is the process of validating an organization's financial tracking and reporting system and verifying that financial managers have been diligent in accounting for funds. Audits done by in-house employees are internal audits, while audits done by outside experts, such as accounting firms or IRS professionals, are external. It is an important check and balance in financial management, and one of the means by which company owners can hold managers accountable for their performance.
The general ledger is vital for tracking cash inflows and outflows against receipts and other documentation of expenditures.
Bank Account Statements
For annual, fiscal year audits, obtain the bank account statements through the end of the month in which the company fiscal year ends. In most cases, that fiscal year ends on Dec. 31. The January statement will show the beginning balance as of the first day of the new year, which is the same as the ending balance at midnight of the last day of the fiscal year.
You should present copies of all tax returns, including Social Security withholding tax returns, Schedule Cs and any itemized list of deductions for comparison with the general ledger.
Receipts and Invoices
Receipts and invoices are critical for validating cash outflows in the general ledger.
Corporate Bylaws and Minutes
The minutes and bylaws represent the will of the board of directors of a corporation. A formal record of their decisions and policy directives is important in establishing how faithfully management carries out its directives, made on behalf of the stockholders of the company.
These are records of all liabilities of the organization, including lease agreements, rentals, fees, scheduled payments to bondholders and other creditors, and taxes due.
These are records of all assets that generate cash flow into the company. Examples include rents, licensing fees, loans and financing arrangements, and income-producing investments.
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