What Is The Difference Between A Transaction Audit And An Internal Audit?

Accounting can be difficult to understand if you don’t have a formal education in the field, especially when it comes to audits. Often times transaction audits and internal audits are used interchangeably, but they are actually two completely different things. Our team of trained professionals at C.E. Thorn, CPA, PLLC will help educate you on the difference between a transaction audit and an internal audit.

What Is A Transaction Audit?

A transaction audit is a kind of report that is used to keep an accurate account of the transactions your organization has entered. This is a bookkeeping tool used to review the health and well being of a company but typically only focuses on the transaction history of the organization compared to an internal audit that covers a wide variety of other issues. A transaction audit can be used during a complete internal audit process but it is just a small part of the larger internal audit process.

Transaction audits are broken up into two separate sections to make it easier to understand and track. This first section is the name of the transaction in the exact form as your team entered it into your general ledger. This keeps everything uniformed and easier to keep track of as there isn’t a chance to the name or listing method. The second section of a transaction audit is the actual journal entry that is recorded on the general ledger.

What Is The Transaction Audit Process?

When a transaction is recorded by your team, an individual transaction audit will be developed with a correlating audit number. The audit number is used to keep track of the individual transaction while it is recorded with all of the other transactions your business will complete. To help keep the transaction audit as organized as possible, transaction batches are used to group transactions performed at the same time. If your team enters 10 separate transactions at the same time, these transactions will be assigned to the same transaction batch. This helps keep your transaction history organized as well as makes the entire transaction audit process easier.

What Is An Internal Audit?

While a transaction audit analyzes the health of your businesses transaction history, an internal audit will evaluate the overall health and effectiveness of your business. An internal audit will not only analyze your transaction history, it will also examine the day-to-day operations of your business, the effectiveness of your marketing efforts, and much more. An internal audit will provide your business with a more advanced look at the health of your business in its entirety. If you are looking to have our CPA firm perform an internal audit and other small business accounting services for your business, then you should give us a call at 919-420-0092.

What Is The Process of Performing An Internal Audit?

Performing routine internal audits can drastically improve the efficiency in which a company operates as well as help increase the profitability of company by identify unnecessary expenses. Performing daily, weekly, monthly, or annual internal audits can help defend your business from wasted materials, potential fraud, and develop strategies to improve the financial wellbeing of the business as a whole. When performing an internal audit it is important to be as detailed as possible with the audit findings. An audit is used to analyze every single crevice of the business and it is important to utilize the new found information to improve you organization.

Based on the industry as well as the structure of the business it may be beneficial to perform internal audits on specific departments more often than other departments. If your business is heavy in manufacturing products then it may be important to performing daily audits for that department. If your organization performs a large amount of transactions then it may be beneficial to focus on transaction audits to make sure nothing slips through the cracks. It is important to utilized accounting professionals when handling audits as well as other financial statements.

Internal Audit Process

  • Planning – Typically the first step in performing an internal audit is planning for the audit. This is where the team will list the objects and what they would like to achieve from the project.
  • Auditing Fieldwork – The fieldwork step is where the actual auditing services are performed. This means reviewing important documents and statements but can also include interviewing employees to double check statements and facts.
  • Reporting of The Data – One of the most important parts of the audit process is reporting of the findings. This is where the audit team will draft up an easy to read data report that will help convey their findings. The report should then be reviewed directly with management to make sure all team members are on the same page. The end of the reporting step should include actionable ways to correct the findings of the audit.
  • Post Audit Follow Up – The follow up isn’t always included in all audit processes but it can prove to be extremely beneficial. The follow up step is used to check up on the improvement from the audit reports. Often times without a scheduled follow up it is common for teams to become inconsistent with the changes they were supposed to make following the reporting step.

It is important to understand the different between an internal audit and a transaction audit. A transaction audit is just a small part of a total internal audit but it can still be incredibly beneficial for a majority of businesses.

Our Experienced CPA Team Will Help You With Financial Audits

Audits can lead to profit increases, more efficient business operations and a variety of other benefits for you business. But it is important to work with an experienced team of professionals in order to get the best possible results. To learn more about our auditing process and how it can benefits your business, submit our online contact form or call our Raleigh accounting firm today at 919-420-0092.