Tag Archives | auditing

Management Audit

See Also:
Total Quality Management
Capital Structure Management
Activity Based Management (ABM)
Retainage Management and Collection
Management Definition

Management Audit Definition

A management audit can be defined as an audit which analyzes the effectiveness of the management team of a company. The purpose of this is seven-fold: understand current practices, relate these to company financials, suggest new procedures which will improve the efficiency of managers, present a financial gain related to these new procedures, and create benchmarks and projections for the future. Finally, a management audit letter is the last piece of material shared with the client; it is a report of the findings.

Management Audit Explanation

The management audit process can be explained by the auditing of both the management method as a whole as well as key management staff. This is important to establish the effectiveness of both the leaders of the department as well as how it performs as a team. In this way, it can fill the purpose of a staff audit or performance audit, depending on the scope of the company.

Management Audit Example

For example, Stan is an auditor for a major, Fortune 500 auditing firm. Rather than focusing on the accounting side of the process, Stan has another focus: management. His work, analytic in nature, involves paying attention to the qualitative as well as quantitative factors surrounding the process of managing client companies. Stan loves his work because he gets to attack a new problem constantly.

Recently, Stan has begun work with a new client. To serve this client, as well as all the others, will require application of fundamentals while still customizing the project to the specific needs of the customer. Management audits generally use certain processes as a control technique while applying industry specific analysis techniques.

Evaluation & Management

Stan begins by asking the initial evaluation and management audit with questionnaire forms. These questions lay the groundwork for him to begin the process. Next, he looks at company financials. This tells him how much all of the management operations are effecting company profits. He continues the process with a number of variables until he understands the company quite well.

Completion

Stan finally completes his management audit. From this he can present his audit to the client company board of directors. His assessment with leaders improve the processes which support company revenue creation. His assessment has several gems of information but one stands above the others: a key manager in the company is not as effective as expected. The company will deal with the problem in a way they see fit.

Stan loves his work. Though sometimes he has to provide negative feedback, he appreciates that he is the messenger which leads businesses to the path of success. With his skills in the process of performing a management audit, Stan will help clients, his employer, and himself. If you want to find out how you can become a valuable financial leader, download the 7 Habits of Highly Effective CFOs for free.

Management Audit

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Management Audit

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Managed Sales And Use Tax Audit Programs

See Also:
Auditor
Audit Committee
Choose a CPA/Auditor
Allowance for Uncollectible Accounts
Are You Collecting Business Data?

Managed Sales And Use Tax Audit Programs

A managed audit is an agreement with a state’s taxing authority in which a company self-examines its own books and records. A managed audit agreement allows the company, or an outside audit firm, to conduct a self review with guidance from the taxing state. But this occurs on its own time table.

In states that allow a self-audit, the ability to participate is usually reserved for companies that have been previously audited and that meet certain other criteria. This criteria may include type or size of business, records kept, and transactions under review. While voluntary, managed audits generally provide a company more control over the process and tend to be shorter in duration.

As an incentive to undertake and manage a self-audit, the state may offer an incentive such as a reduction in interest and/or penalty abatement on any deficiency uncovered. Although not all states offer financial incentives in their managed audit programs, in those that do, the rewards can be well worth the costs associated with a self-administered review.

Benefits of  Managed Sales And Use Tax Audit Programs

In addition to reduced penalty and interest assessments, other benefits can include the following:

  • Closed audit periods at the end of the managed audit process
  • Resolution of questions about taxability at the field audit level, during the audit process, not afterwards in administrative appeals
  • Less on-site time for state auditors and less disruption of regular business
  • Reduction in protested audits
  • Increased understanding of the audit process and the application of sales and use tax to the business, resulting in lower audit assessments in the future

While it may sound advantageous to undertake such an effort, a company will want to have an understanding of the increased expectation as well. For example, under a general audit, the taxpayer is not obligated to point out a known liability the auditor fails to uncover. Under a self-audit, a similar failure to disclose information could lead to a presumption of fraud.

Other aspects to consider include the following:

  • a company’s ability to provide the manpower
  • knowledge required for the self-audit

This ensures that it will work both effectively and economically. Even a managed audit requires employees to divert time away from their regular activities and job duties. Conduct an economic analysis comparing the internal cost of the audit versus the potential savings from reduced penalty and interest on uncovered liabilities before you negotiate a managed audit agreement.

Managed Sales And Use Tax Audit Programs

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Forensic Audit

See Also:
Auditor
Audit Committee
How to Choose An Independent CPA/Auditor
How to Control Annual Audit Fees
Managed Sales And Use Tax Audit Programs

Forensic Audit Definition

A forensic audit, defined also as forensic accounting, is the process of auditing a company’s records for the purpose of satisfying a legal investigation. Forensic accounting, though it does not always yield a crime, is generally for the purpose of bringing an embezzlement or fraud case to its end. Tools are often employed for this work, such as forensic audit mortgage software, checklists, and more.

Forensic Audit Explanation

Explained as the method to find fraud in a company, forensic audit has other purposes as well. Forensic accounting can be used to find information for any government investigation: fraud, embezzlement, subpoena, deposition, or other. Along these lines, forensic accounting can involve a company, company employees, or just be used to find relevant records for an outside investigation. Forensic audit cost varies depending on the size and scope of the project.

Often times a forensic audit report does not yield results which indicate an illegal action. In this case, the investigation will cease and the results of the audit will not be used. In this case, all involved parties will be left as if no audit occurred.

Forensic Audit Example

Lucas works forensic audit jobs with a private auditing company. His employer is hired when a company expects fraud may be occurring in their ranks. Lucas is a CPA and can find records which can be used to bring a criminal to justice.

Recently, Lucas is sent on a project for a distribution plant of a major public company. He is prepared to find foul-play as he begins his investigation. As Lucas proceeds, it appears that someone has stolen funds from the company. All signs point to Susan, an account manager with the company. Lucas is about to talk with the company when he finds a crucial record for the case. It seems Susan was instructed to transfer company funds to an outside bank account. Though this seems suspicious at first, Lucas is able to find documents which support this action. He later finds that the issue lies with Susan’s boss, he lost some of the paperwork for this transaction. It was completed; however, it remained unaccounted for. Lucas looks a little deeper and finds no mistake other than the loss of the paperwork.

He completes his project on a good note. He recovered the funds while preventing a criminal case against Susan. Lucas enjoys his work but prefers to find no party at fault. He appreciates this welcomed change of pace and leaves work on a happy note.

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forensic audit
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Compliance Audit

See Also:
Audit Scope
Charge Account
Managed Sales And Use Tax Audit Programs
How to Control Annual Audit Fees
Role of a Company Back Office
Planning Your Exit Strategy

Compliance Audit Definition

The compliance audit definition is an audit which serves the purpose of ensuring that a company meets the requirements of an outside governing body. It is commonplace in many industries. Any time a company has to meet licensing requirements for a governing body, either governmental or non-governmental, a compliance audit process occurs. This audit is done by either internal or external personnel.

Explanation

Compliance audits, explained as the method to meeting certification requirements placed upon a business, take place for a variety of purposes. In one instance, governments require compliance audits. These could be for health code, workplace safety, and more. Furthermore, the government requires certification to prove that a business meets the standards of operation it places. Compliance audit guidelines let the business know how it can best plan for this.

For non-governmental organizations, compliance audit solutions are equally as common. These serve the purpose of gaining certification through networking groups, industry groups, customer advocacy organizations, and more. As an example, the better business bureau has a certification process for qualified businesses. Furthermore, companies require a compliance audit methodology to be better business bureau certified.

Compliance Audit Example

For example, Don is the manager of a major chemical plant. This business, dealing closely with the major petroleum companies, has many requirements for operations.

Recently, Don’s business is due for workplace safety certification. This certification requires close scrutiny from government agents and therefore, it will not be easy to pass. To prepare for this, Don hires an outside consultant to perform a compliance audit. This audit will clearly spell out, through an after-audit report, how the plant must improve to meet governmental requirements. Included in the price is a compliance audit handbook with detailed instructions on the requirements of the license.

After Don’s compliance audit process, he is thrilled; his company has to make only a few inexpensive changes. Don is happy that his company protected profits by hiring a well trained expert for help. In conclusion, passing this test will lift a huge weight off of his shoulders.


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compliance audit
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Audit Scope Example

Audit Scope Example

Ely is an auditor for the IRS. His work, some of the most technical for any forensic accountant, involves looking deeply into a company to find errors which may lead to prosecution. By doing this, Ely is preventing the company from any financial foul-ups that could lead to fraudulent information being shared. He is now tasked with finding the reason for recent tax payments.

The company Ely is auditing is a major food processing plant. This food company has had a history in the past of financial record “mistakes,” which explains the reason for the IRS being quick to investigate a discrepancy. This company, paying much less than IRS estimated taxes, may face a penalty. Thus the company sends Ely to see the reason for this discrepancy.

As Ely is working he takes on massive amounts of documents. He will have to sift through countless financial statements, as well as procedural documents in order to draw a conclusion on a large auditing matter. For this project he will have a very deep audit scope: he must find the reason through almost any means necessary. Because federal taxes are taken very seriously in the United States, Ely is given the authority by the IRS to request any documents or evidence that could make his decision making process run more smoothly in a legal way.

Ely Finds Something

As he is working, one of Ely’s assistants finds something; an account which should have more money than it does. With large company’s this is not uncommon because large sums of money must be moved and transferred at a moment’s notice in order to retain balance in the company’s ledgers. However, Ely is not completely convinced that unintentional error is the cause for the discrepancy. Ely scales deeper to find the cause: a company employee has been stealing funds. Though the company itself is proven to be fully compliant their records have been altered by this corrupt worker. Ely is able to help the company recover the funds and see that the employee pays for his crime. Each party is pleased with the audit, except for the employee who caused the problem.

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audit scope example
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audit scope example

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Audit Scope

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Audit Scope

Audit Scope Definition

Audit scope, defined as the amount of time and documents which are involved in an audit, is an important factor in all auditing. The audit scope, ultimately, establishes how deeply an audit is performed. It can range from simple to complete, including all company documentsAudit scope limitations can result from the different purposes listed below.

Audit Scope Meaning

Audit scope means the depth of an audit performed. Audits are performed for several purposes: regular “checkups” of company records, to check for internal errors, for the purpose of finding fraud inside a company, for the purpose of finding fraud in another company, or even for the purpose of finding tax income and other offenses against IRS law. Due to this fact, audit scope and objectives have a different meaning depending on the person performing the audit as well as the reason behind the audit.

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If the audit is being performed for regular internal processing, then the audit will generally only have a scope which includes the latest period which has passed. This occurs because the company has probably already audited the previous period.

If An Audit Reveals Fraud

If the audit is being performed to find fraud, however, it will generally have a deeper audit scope. It may include records from years or even decades ago. This is due to the fact that, at the very least, a violation of company policy occurred. Dedicated auditors, either company employees or hired auditors, spend their entire career in this. They often spend much more time and look far deeper in this process.

IRS auditors may even look at documents which were created during the birth of a company. This is because they are trying to find errors which result in increased income for the government as well as civil or criminal charges. A company will want to keep pristine records to assure that the auditor does not look deeper than the audit scope documents which a company can support.

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