Today, entrepreneurs and managers have a wide range of business management tools. As a rule, the market is dominated by those who can effectively combine these tools.
One of such instruments, which proved its efficiency both in developed and developing countries, is the audit. It’s not just a formal verification of companies’ financial reports, but an in-depth analysis of processes which generate figures and findings of these reports, and which are relevant for a particular business entity. This research is directed at strengthening and broadening of capacities of companies’ owners and top-management in the supervision of routine and strategic goals of the company.
These are audit results which can be really useful for entrepreneurs.
Information on the real structure of the company
Regardless of the level of the owners’ involvement in business-processes, from time to time they need a fresh look at its organizational structure and internal operational environment, notably if it’s a large scale company. A professional auditor knows, that an owner or a top manager of the company may have only vague (sometimes even erroneous) understanding of the company’s structure as well as of the ways the internal supervision of processes is organized within such structure. Brining of information on peculiarities of such structure and disadvantages of internal supervision processes to the attention of business owners by the auditor enables the assessment of the functional and linear connections among company’s employees and departments, identification of the efficiency of processes organization, as well as exploration of ways of various parameters optimization.
Analytical data related to the enterprise
Auditing procedures conducted by the auditor in order to prepare a relevant report as a rule incorporate analysis of the general financial indicators, profitability, economic activities, solvency, etc., comparison of these indicators with those of other companies working in the same domain, understanding of the nature of unusual, according to the auditor, changes and trends in the operation of the business. If no economic analysis is conducted in the company, the reporting materials prepared by the auditor give an opportunity to identify the advantages and disadvantages of business and thus increase its efficiency. In case such analysis is conducted, the added value of auditors work consists in carrying out the control analysis. Business owners and top-managers sometimes lack understanding of analysis indicators and thus can draw erroneous conclusions from its results. That’s why very often they rely on their internal analytics. Though, their conclusions and forecasts can also be incorrect. That’s why the external auditor’s perspective on these indicators (as well as the credibility of coefficients’ calculation, substantiation of conclusions and forecasts based on the analysis results) ensures that final users correctly understand the situation at the enterprise, its profitability, financial state, as well as other critical operational indicators.
Ensuring the psychological mobilization of managers
Any line or functional manager is primarily a human being with all his/her weakness and laziness. In any activity involving a high level of responsibility, a person’s natural laziness or lack of integrity can kick in any time. Conduction of regular audit will give the business owner a perfect leverage of influence conveying a clear message to managers: “From now on your activity is permanently supervised. From now on the auditor will monitor all your results – both final and interim. Thus, the auditor will have a possibility to evaluate them respectively”.
Ensuring reasonable reports drafting and reading, including internal ones
As a rule, financial reports are compiled by accountants, while the verbal presentation of financial indicators for owners is conducted by managers. Moreover, very often management doesn’t really indulge into the in-depth analysis of the indicators (i.e. which particular operations underpin different reporting indicators) as well as of the processes behind figures which are important for the company. If accountants and managers will have a clear understanding that all key reporting indicators will be verified by auditors, the level of responsibility and accuracy in reporting, as well as credibility of financial data will substantially increase. Furthermore, very often the financial reports are insufficient to provide top-managers or business owners with a proper understanding of the real situation in the company, even if it’s prepared more often than stipulated by the national legislation. In this case, there is a need to identify a certain number of key indicators which should be analyzed to assess the current state and development potential of the enterprise. Auditors can provide recommendations regarding the identification of such indicators, drafting of business-owners-and-managers-friendly reporting templates, supervision of the processes of reports drafting and submission. It also concerns planning and budget indicators – the auditors can set up those as well. Furthermore, they will do it faster and more professionally than permanent employees.
Identification of operational drawbacks
The auditor’s vision of the general situation, as well as particular business processes, can substantially influence the future wellbeing of the enterprise. It concerns the sphere of taxation in particular. Probably, the majority of failures are conducted by companies in the sphere of assessment and payment of taxes, fees, and other obligatory payments. Permanent supervision of this sphere by an independent auditor will prevent the company from enduring undesirable consequences of the tax legislation’s violation.
The attraction of additional investments for the development of the company
This paragraph concerns financial reports authorized by an auditor. For the Western business environment, it’s quite natural to receive references on potential candidates for cooperation. It means that before starting to work with a counterpart or investing money into a particular project, companies receive third parties feedback on work of businesses in question. In the sphere of capital investments in enterprises, the auditors bear responsibility for this. Before the adoption of the investment decision, one of the crucial conditions should be observed – availability of the audit conclusion on the credibility of the company’s reports, approved by renowned and respected auditors or audit firms.
The list stated above isn’t exhaustive. It’s hard to compile a definitive list of the advantages and benefits of the use of professional auditors’ services, even though they are quite obvious. Nevertheless, one of the key conditions of the audit efficiency, even if it’s conducted by the most competent audit firm in the world, is its regularity. Systematic checks allow an auditor to be emerged deeper into the professional environment of the client and provided more qualitative and comprehensive conclusions and recommendations on the further work of the company with every following inspection. Furthermore, permanent audit forms an understanding among employees that their work will be monitored accordingly and results of their activities will be presented to the management not in the most attractive, but in the most credible way. This, in its turn, will encourage staff members to permanently improve their performance.
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