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How to Perform a Basic Accounting Audit

Whether you're self-employed and working out of your home, you run a small business without a lot of cash for extras, or you operate a corporation and you want to make a preemptive strike to ensure that all of your bases are covered before an outside entity makes an inspection, you may be interested in performing an internal accounting audit. But if you don't happen to have an accountant on staff (or at least not one familiar with auditing procedures), you may have to work out the details on your own. So here are just a few basic steps that you'll want to take in order to check out your finances and make sure that everything is in order.

Your first step, if you have no background in finance, should be to contact an accountant (like a CPA) for advice. Although you may not have the budget to pay for his services as an independent auditor, you would be well served to arrange a consultation session in order to gather the information you need to perform your own audit. You should ask if he can provide you with a checklist of steps to follow in order to dot your i's and cross your t's, and while he may not want to enumerate the many laws that govern the finances of a given business, he can at least point you towards the resources you need to find this information on your own.

So the next step is to ensure that you are aware of any legislation concerning accounting practices for your type of business. This is important, first and foremost, because you don't want to inadvertently break any laws and find yourself in court for fraud or tax evasion. But it also behooves you to understand financial laws governing businesses because they differ by the size, scope, and type of company you run. Freelancers and small businesses may not be subject to the same regulations that affect large corporations (such as rules regarding accounting practices on a departmental basis, which wouldn't apply to a sole proprietorship, for example). Knowing the laws that concern your business (and which ones don't) is imperative to completing a valid accounting audit.

Now it's time to get to brass tacks. You'll need to gather a slew of financial documents in order to get started, beginning with any past audits, tax returns, and so on. This should give you a good idea of what you need to collect in order to perform your audit. In truth, pretty much any type of financial statement, from monthly earnings to cash receipts to corporate credit cards (even your 0 interest credit card transfer balance) is going to come into play. So hopefully you're the type of person that saves everything (or you have comprehensive tracking software to help you out so that you can simplify the proceedings by printing out reports).

From there it's just a matter of going over your finances with a fine-tooth comb. You not only need to make sure that the money coming and going matches your current records, accounting for income, expenses, payments pending, and so on, but you also need to be able to trace everything back to its original source (follow the audit trail, in other words), especially if you work with a complex web of employees, vendors, clients, and so on. If worse comes to worst and you simply can't handle it on your own, you can always hire an accountant to do your audit for you (at least the first time so you can see how it's done). But you may be able to save yourself some money by doing it on your own if you just follow basic auditing procedures.

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