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A corporate audit is an examination of financial or operational procedures at a corporation. Audits may be conducted by an internal or external corporate auditing team, and they can serve a variety of functions. While many people think of audits by tax authorities when they hear the word “audit,” corporate audits are not just about taxes. Auditing is designed to confirm that companies are operating within the law, and that their stated ethical standards are upheld by their practices.
In the financial sense, a corporate audit involves detailed inspection of financial accounts and financial practices. Auditors look for financial irregularities which might be signs of tax evasion, embezzling, and other illegal activities. For some financial audits, the auditors may also be concerned with how to help the company operate more efficiently and effectively, looking for ways in which the company can cut costs and improve performance. Others may be more interested in making sure that the company's financial situation is accurately represented.
For publicly traded companies, financial audits and disclosures of financial information are required to protect shareholders and members of the general public. The most recent audit results and financial filings must be made available to those who ask. Auditing is designed to act in a regulatory capacity, keeping companies fiscally responsible and honest about their financial practices and economic situation.
Procedural audits can cover a number of different areas of a company. Auditors may be interested in confirming that a company is complying with environmental laws, laws to protect worker safety, and other types of laws, in which case they may be external. A procedural corporate audit may also involve an evaluation and assessment of practices and procedures at a corporation, usually with the goal of improving operational performance. If the auditors identify areas where the company appears to be operating inefficiently or questionably, plans can be developed to address these areas of deficiency.
In the case of an internal audit, a corporate audit is handled by people within the company. External audits may involve auditors hired by the company, in which case the company uses a third party to make the results more reliable. Government agencies can also bring in their own auditing personnel to examine a company and its practices. In these cases, while it may be possible to refuse the audit, refusals are often read as admissions of guilt, and when the government does successfully access the company to perform a corporate audit, it will be closely scrutinized.
In my job, and many others, corporate internal audits are used to measure and regulate safety procedures, proper profit and loss rates, and inventory balance. Company-wide internal audit standards are used in each store to make sure that every location meets the same standards.
Corporate officials will come (frequently unannounced) and check inventory reports, observe employee procedures, or review paperwork. This usually puts a lot of stress on the store manager or franchisee, especially if they bend the truth sometimes!
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