Fear not! A business audit doesn't have to be the end of the world.

• Author: Jimenez, Carmen J.

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According to Wikipidea, the earliest account of any type of audit can be traced back to 1314, in England, where a public official was tasked with auditing government expenditures. We can travel even further back to Mesopotamia where some form of financial statements or records were kept and produced. The audit requirement in the United States came when Congress passed the Securities Act of 1934. This Act was created as a result of the infamous market crash of 1929. Typically, Congress doesn't make major changes in auditing standards unless some type of audit failure has occurred. Historical events that have triggered legislation include the stock market crash of 1929, which resulted with the Securities Exchange Acts of 1933 and 1934, and, most recently, the collapse of Enron, which triggered the Sarbanes-Oxley Act of 2002. In addition to financial audits, there are many different types of audits that a company may be subject to during its existence. Common audits are insurance, contract, compliance and potentially, the most feared of all, the Internal Revenue Service (IRS). If you are well-prepared and honest, and document your business dealings, any type of audit you become subject to should go smoothly.

PREPARE. PREPARE.

The biggest benefit of a financial statement audit is to provide reasonable, not absolute, assurance to third-party end-users that the financial statements you prepared are not materially misstated by intentional fraud or by misposted transactions. Besides the financial statements themselves, other business processes are reviewed, such as the internal controls, compliance with specific industry accounting methods, and general business health. The best advice given for an audit of any kind is to be well-prepared. Before the auditor has arrived, time must be spent preparing for the audit; it's discouraging to the auditor to receive an incomplete set of documents or, sometimes, none at all. Not only does this waste all parties' time involved but money as well.

Normally, a client is sent a preparation list asking for specific items that are needed to begin the audit. After fieldwork begins, the auditor will request additional information, which could be checks, invoices, contracts, employee files or board of director minutes. The source documents requested are used to substantiate the balances on the financial statements. Below are some comments on the most common accounts on the balance sheet:

1. Cash...