May 14, 2020 Last updated May 14th, 2020 1,515 Reads share

Small Business Owner? Here’s What You Need to Know About Auditing

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Auditing is an examination of the financial reports of an organization or business. The purpose of auditing is to provide confidence in the accuracy and legitimacy of the accounting reports.

Do you own a small business, but are unsure whether you need auditing? Keep reading!

Accounting vs. Auditing

To put it simply: Auditing is a more specialized field within accounting, although the two go hand in hand. Auditors must be qualified and competent in accounting in order to properly conduct an audit.

An accountant record, classify, and summarize transactions in accordance with GAAP, and is capable of doing bookkeeping and prepare the financial statement. GAAP (Generally Accepted Accounting Principles) is a standard framework of guidelines for financial accounting. Dependent on the country, the framework is slightly different.

An auditor accumulates and evaluates evidence, and determines whether the financial statements are prepared in accordance with GAAP. The auditor must be completely separated from the business, which means you need to hire external auditing services to determine your financial state.

Do I Need an Auditor or Accountant?

All organizations that are obliged to submit audited accounts annually, must have a public auditor. Whether or not you are obligated to submit audited accounts depends on your organisational form, the size of the enterprise, and which country or countries you operate in.

Some professions have an audit obligation under special rules, such as lawyers, real estate agents, and accountants.

Even if you’re not obliged to submit audited accounts because you’re a small business owner, it might be in your best interest to hire an accountant anyway. Here’s why:

Business and Tax Affairs are Complicated

Most of us are not accountants and tax affairs are a complicated matter. If you are self-employed and raise one or two invoices a month, you can easily handle tax affairs by yourself.

As soon as clients start paying you in advance or you purchase large pieces of equipment, taxes get complicated fast. It’s not a bad idea to hire an accountant to stay on top everything and avoid costly mistakes.

Confidence Around Accounts

Do you understand bookkeeping and know how to read a set of accounts? If the answer is no or the thought of account makes you nervous, you should consider hiring an accountant.

The accountant will look over your financial state and make sure everything is in order, which means you can focus on the core business and not spend hours worrying about bookkeeping.

You Can’t Afford Not To

Accountants aren’t the cheapest, and many small business owners haven’t got the budget for it. On the other hand, when you start doing your own accounts it’s easy to make mistakes that’ll cost you more in the long run.

Furthermore, hiring an accountant doesn’t have to be a costly and life-long engagement – once you feel more confident, you can start preparing your accounts by yourself again. We recommend this article on how to manage your own accounts for startups.

Good luck!

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Melody F Stern

Melody F Stern

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