Preparing for your first Audit

The first time you face an audit can be intimidating. It needn't be so. A few simple steps can make all the difference between a relatively painless experience or feeling like you just faced the Spanish Inquisition. Here are a few steps in preparing for your first audit.

The most import fact to realize is the role of the audit. The auditor is simply inspecting your books or records, and verifying that they are correct. He or she is not redoing your books, that is the job of your bookkeeper or accountant. The auditor is just signing off that your records are correct. In a tax audit, this is supporting that the base income and expenses ere correctly reported, and these will be used to figure the proper tax. For a business audit, the audit is verifying that the financial records for your company are accurate, for investors and other interest.

Record Keeping

The first thing an auditor looks at is your record keeping. If this is a business audit, the auditor will be looking at your company's books. In a personal audit, they will be inspecting your personal household record keeping. What they find will determine how they proceed.

So in preparing for your first audit, the most important step in making sure your books are in order. Accurate, well-prepared, and tidy records will indicate how the audit will start. If the records are in order, entered correctly, and logical, the audit can move to the next step.

The auditor will check the supporting records and make sure that the transactions reported were properly recorded by standard accounting practices. The better that records, the high degree of confidence the auditor will have your books, and the less investigation the audit will have to perform.

So clean, orderly records are the most import step in preparing for your first audit. Well prepared supporting data is second. If these requirements are met, you will probably be facing a relatively short, painless audit.

If your records are in shambles, supporting records missing, the opposite will occur. The auditor maybe required recreating records, throwing out unsupported transactions, and can basically redo your record keeping.

This can be a time consuming, expensive ordeal. Remember that your business is paying for the audit. The more the auditor is required to do to verify your records, the more expensive the audit will be. It pays to keep clean, accurate records.

At the end of your Audit

When the auditor is satisfied that the financial picture recorded in your books is correct, he or she will sign off on the audit. Any deviations from standard accounting practices will be noted. They will prepare an audit report, which will provide financial institutions and investors a look at the health of your company. So in a way, an audit is simply like a doctor performing a check up.