Thanks to the good people at the IRS (and contrary to popular belief, most of them are good people just trying to do their jobs, not screw over their fellow citizens), there is a very negative connotation associated with the word "audit." Not always realized is that most major businesses perform audits on themselves (and they should if they don't). This is a very important part of any business' accounting departments. Why would they do something that most individual people dread? The answer to that is that, if conducted properly, there is a great deal of important information that can come from an audit.
First, it shows the accuracy of bookkeeping. Bookkeeping is typically viewed as one of the simpler aspects of modern business, especially with the advent of computer systems that automate entries that were once done by hand in multiple ledgers. However, that does not mean that bookkeeping is any less important than it was ten, twenty, fifty, or a hundred years ago. It is still critical to get the numbers right. If there is one process where the numbers are going askew, it is important to catch it and fix it as quickly as possible. This is also pivotal in helping businesses make future decisions. The effectiveness of decisions is dependent on the quality of the information available on which to base those choices. Only with accurate data can a business or company hope to consistently make decisions that will prove to profitable. Contrary to popular belief, most accounting errors occur not through unethical intentions, but rather from carelessness or honest mistakes.
Internal audits are also critical in preparing for tax time. While having inaccurate accounting data can lead to bad internal decisions that may or may not lead a company to a rough fate, reporting inaccurate tax returns to the government adds legal quandaries to the mix. When a business is audited by the government, it not only poses an immediate legal threat to that organization, it also does irreparable harm to that organization's reputation. Customers will think a business that cannot do its taxes properly will prove to be unprofessional in other departments as well.
Additionally, audits are used to determine fraud and theft where they do occur. They serve as the primary method of internal controls. Not only are they often necessary to help catch unethical behavior when it does occur, but they also help to serve as a deterrent against such behavior from one's own employees, suppliers, vendors, etc. I cannot even begin to describe the number of embezzlement cases I have heard which involved a situation where one person ran all the books all the time. Without any controls or oversight, these crimes can go on for months or even years before upper management discovers that there is a problem. Even once discovered, unless detailed records are kept, it will be tough to prove that the theft actually did occur.
More than anything else, audits should tell you whether you are doing things right. Now, it is up to your customers to tell you if you are doing the right things.
More accounting Info:
Ernst & Young - accounting
Apex Analytix - Accounting Software
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