Two popular questions pop up when discussing audits. They are “how much it costs” and “how long it takes”. In terms of cost, an audit won’t come cheap (if it is properly done) and may take weeks to be concluded.
This means you have to be super confident your company needs one before engaging a Certified Public Accountant (CPA). Besides the completion period, other factors can influence how much a company or shareholder pays for an audit.
This and other important information such as why audits are necessary, the processes involved, and effective ways you can cut costs are what this guide will smoothly walk you through.
How Much Does an Audit Cost?
An audit can cost between $135 to $89 per hour depending on the specifics, simplicity, and the type of organization requesting it. Hence, it is safe to budget at least $10,000 for the entire process.
Why Are Audits So Expensive?
Various factors can affect the cost of an audit. Common ones include:
1. Risk or liability involved
You might not know this but CPAs put their license and reputation on the line when they audit an account. If an audit is perceived as fraudulent or ineffective, the CPA firm or individual involved will likely lose their license and all forms of credibility.
This may result in lawsuits and payment of legal fees and penalties. While it is their duty to strike a balance between executing a clean audit and making their clients happy, they also consider this risk when declaring how much an audit will cost.
2. Time and labor
The amount of labor and time required to execute an audit varies. If you are the only client of a CPA, it can take weeks or a month for your financial report to be ready.
For a CPA with more than one client, it usually takes longer time and involves more labor for the result to be ready within a month.
As a company, you must table the needed books for the accountant to detect risks and non-compliance. This makes the job a bit easier.
3. Audit type
Audits can be carried out on real estate trust accounts, self-managed super funds (SMSFs), and solicitors trust accounts, to name a few. Of all these accounts, the cost of auditing an SMSF is usually the highest if things do not take an awkward turn in other accounts.
4. Complexity of the job
Another variable that can make an audit expensive is how difficult the assignment is. Some companies do not execute regular audits because of their cost, hence, when they need one, the CPA or the auditor has a lot of digging to do.
To simplify the entire process, clients are requested to provide as much information and details as possible. Providing less info means more work has to be done and you will have to pay for that.
Remember when I said an SMSFs audit is usually more expensive than that of a solicitor account? This can change when a client requests a solicitor account audit and includes a timeframe for completion.
In this case, you may end more spending the same amount or more than the amount you spend on auditing SMSFs.
Urgency implies doubling up in terms of labor, planning, and other aspects. Hence, you should be prepared to pay more.
What Are the Stages Involved in Preparing Audit?
There are 3 major stages involved in preparing an audit. Within these stages, there are crucial steps an auditor or accountant must strictly follow:
1. Planning stage
The planning stage of an audit starts immediately after a CPA gets assigned to execute an audit. At first, the assignment can seem a bit vague, but this phase is what provides clarity.
The entire work process in this phase includes:
- Gather necessary information about the company
- Determine audit criteria
- Perform a risk assessment
- Refine the audit objectives and sub-objectives
- Choose methodologies
- Budget each methodology
- Make the audit plan official
2. Fieldwork stage
This phase begins after formalizing an audit program or making it official. Other tasks in the phase involve:
- Carrying out all the steps present in the plan
- Documenting results in a paper
- Reviewing this papers for correctness and errors
3. Reporting stages
At this stage, you are no longer documenting results. You have moved past that and are only concerned with inferences gathered from results.
In short, the reporting phase features:
- Writing inferences
- Discussing these inferences or findings with the client
- Conclude and finalize your report
How to Minimize Costs of an Audit?
Due to the generally expensive nature of audits, business owners or entrepreneurs are constantly in search of ways they can minimize costs and still get a perfect audit.
Let’s take a look at some crucial decisions that can make the process budget-friendly:
1. An immaculate audit record
If an organization boasts of regular and unsullied audit records, CPAs would find it easy to review them and conduct a new evaluation. To have such a record, clients must make use of electronic systems like QuickBooks, Xero, or other industry-standard accounting systems.
The bookkeeper in charge of this software must always input the right record and must be able to defend the record.
2. Hire someone for clerical duties
Another way you can minimize costs is to get a data entry professional to help the CPA with clerical duties. The good thing about this option is that most companies have individuals with this skill set already.
All they need to do is to assign one or two to the CPA. This nullifies the expensive hourly fees you have to pay CPAs for data research and organization. Instead, they only work on refined data and charge less for the entire procedure.
What Are Audits For?
Audits are generally carried out by big companies to identify risks and compliance levels. Hence, they are majorly for:
- Public companies under SEC (Security and Exchange Commission).
- Non-public companies that have shareholders or investors
- Organizations that accept grants or funds from the government at the federal, state, or municipal level.
- Companies who received a loan from a bank must present how the loan was spent.
- Corporations looking forward to being a part of the Forbes 100 list
Is an audit expensive?
Audits are expensive.
This is rightly so because they are time-consuming and must be perfect, hence, the auditor loses his or her license.
Who pays for an audit?
Investors or shareholders pay for an audit.
How much they pay depends on the task ahead and how long it will take.
How long do audits usually take?
Audits generally take between 3 to 6 six months if it is executed by the IRS.
The only times it exceeds this timeframe is when you provide incomplete information or the CPA finds issues within your record and has to look into other years.
Audits are generally expensive because they require time and are technical. You should only opt for one when necessary.
As a company, you should also own a solid accounting system and compliance department. They are the support systems that make audits easier and more budget-friendly.
I hope you found this guide helpful. Please see what is a compliance department to learn more about the role it plays in generating any type of audit.
Thanks for reading.