Most business owners are scared of the word “audit”, it has been made to look like a bad word because once it is mentioned, and the business owner starts thinking about the Inland Revenue Board (IRB). However, they fail to understand that the IRB tax audit is not the only type of audit on the planet, there are others which a beneficial for your business.
Many businesses, mostly multinationals do internal self-audits per annum to make sure that their books are accurate. External audits may be necessary if your business is applying for certifications or any other programs. And if your tax return is not accurate then the IRB can audit you.
But the question is, what is an audit?
For a small business, an audit is an examination of the accounting books and tax returns of the business to ensure that that are correct and are compliant to the relevant laws.
How is a small business audit conducted?
There are different types of small business audits but all of them share the same characteristics and they involve similar processes. The auditor is the person who performs the audit, he can either come from within the organization if it’s an internal audit or from outside the organization for an external audit. The auditor will then do a careful evaluation of your accounting books and financial statements.
For your auditing process, you can either give the auditor a physical copy of your books or you can give the auditor access to your accounting software. Usually the auditor goes through a year’s worth of financial data. If you want the auditing process to be faster you will have to make sure that your books are organized and not messy. This means that you would have to maintain a good bookkeeping process.
When the auditor is done, he sends you an audit report. This report is a statement that contains the auditor’s identity, the scope of the audit and if the financial records of your business is accurate or not.
Types of Small Business Audits.
There are basically three types of small business audits.
1) Internal Audit.
This is an audit conducted within the business by the business owner. It is carried out by the accounting department of the business. This is usually done once a year and it is not submitted to any external body. It is solely for the good of the business and its owner. An internal audit can also be outsourced to an audit firm in Malaysia.
2) External Audit
An external audit is also called an independent audit. It is carried out by someone outside the business. It is independent because the auditor is not loyal to the business and will not compromise the results of the audit.
This type of audit is carried out in order to comply with a legal requirement or maybe to get a certification. After the audit the external auditor will provide you with an audit report.
3) IRB Audit
If your tax returns shows discrepancies then the IRB will impose tax penalty on the discrepancies during tax audit on your business. If you are innocent, this is not a process to be scared of. It is actually something you should embrace as it shows transparency.
How do you prepare for an audit?
You prepare first of all by getting your books in order. Make sure that your books are organized. Then after that you can conduct your internal audit to make sure everything is in place before submitting your business for an external audit or an IRB audit.
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