Top 7 things every business owner should know about financial statement audits

Audited financial statements are reports that are attested by Certified Public Accountants and they provide credibility to both internal and external stakeholders.

Why do we need financial statement audits ?

The following are the top reasons why your business may need them at some point in the lifecycle of your business.

1) Bank requirement/ Small business administration loans: Most banks would like to get a copy of an audited financial statement attested by a CPA. These reports may be required for a bank loan or an SBA loan depending on the industry and the size of the business. They may also help lower your loan interest rates, grant line of credit etc for your business.

2) Best practice & part of finance management: It is a good practice to schedule an annual financial statement audit. An audit ensures important accounting/internal controls are reviewed. This helps build credibility with internal and external stakeholders, employees, government etc.

3) Part of corporate bylaws, audit committee charter, partnership and investor agreements: Many times, important internal documents managed by the company like by laws, partnership and investor agreement may include a requirement for financial statement audit. In such scenarios, it becomes necessary for companies to hire an audit firm.

4) Sale of your business: A financial statement audit is the highest form of assurance to the business owner regarding the financial health of the business. Therefore, a high-quality financial statement attested by CPAs may help maximize the final sale price of the business.

5) Growth and scalability: A scalable business model is a result of many smaller tasks done right. Financial statement audits are one of them. They help identify material weaknesses. As a result, business owners can identify and fix the weaknesses in early stages than in high growth stages. A strong infrastructure promotes growth & financial statement audits enable your company to have a strong foundation.

6) Assist with tax audits or compliances: Financial statement audit work papers provide excellent documentation and can be used to identify any missed tax compliances etc. In addition, they can be an important source of support in case of federal or state level compliance audits.

7) Apply for government contracts: In few scenarios, in order to qualify as a preferred supplier it may be necessary to provide a copy of your audited financial statements for government contracts

Do all companies require financial statement audits? What are the other available choices?

Most publicly listed companies require financial statement audits. If you are privately owned & do not require a full financial statement audit, there are few choices available.

Review of financial statements: They are not as detailed and comprehensive as financial statement audits. They provide limited assurance.

Compilation of financial statements: They provide the lowest level of assurance and may be preferred by small businesses.

 Which one is right for your business?

It varies based on your business needs, type of industry, average annual revenues and who requires this report. A CPA-certified public accountant can further guide you through this process and help you make the right decision for your business.

 

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Posted In: Financial statement audits, reviews and compilations

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