Building on this topic originally brought up by Partner, David Kirkup
Benefits of an Audit
Auditors spell out their findings in a report after the on-site audit has been completed. A full audit report contains three main components. It will include an auditor’s opinion, then the financial statements, and finally the footnotes – basic information about the company, the accounting principles used, and information a reader of the report will need to understand the financial statements.
The auditor’s opinion will state that the financial statements the company is releasing have been reviewed by a CPA and are deemed trustworthy. Along with the auditor’s opinion, the auditors will also issue a management comment letter. This is the auditor’s recommendation to management of areas of concern and things that could be done better, or which are out of compliance, so they can avoid penalties or assessments. The company should set up a procedure to address those comments or to understand the risk vs. costs of adopting them.
The costs of an audit – both CPA bills and internal time – are considerable. But the benefits of an audit are numerous. Audits can improve a company’s efficiency and profitability by helping the management better understand their own working and financial systems. The company’s management, as well as shareholders, suppliers and financers, is also assured that the risks in their organization are well understood, and that effective systems are in place to handle them.
Audits can also identify areas in an organization’s financial structure that need improvement, and how to implement the proper changes and adjustments. Having an audit also lessens corporate risk and therefore can reduce the cost of capital and funding. An audit can uncover inaccuracies and discrepancies within an organization’s records, which may be indications of weak financial organization or even internal fraud, although fraud detection is not the main purpose of an audit.
Bottom Line: as your company grows and becomes more complex, an audit may be required by stakeholders, or may make solid business sense for value creation. Either way, it will involve a lot of planning and call upon skills that may not exist in your company. Fortunately, a B2B CFO has many years’ experience in this area and can help your company achieve a clean audit.