Original post by Partner, David Kirkup
Your bank has requested audited financials, or you are seeking Venture Capital and the VC wants to see audited statements. You have found a buyer for your company – or you are starting to think about an Exit Plan – and need audited statements. So you are being audited and need to know what to do next…
The purpose of an audit is to assess an organizations’ accounting practices, procedures, and reporting. A strong audit record is invaluable in persuading organizations to invest funds, loan money, and purchase companies. But audits are a disruptive process. Most small business accounting staffs are very limited, and now they’re asked to do more work.
Auditors will require a number of schedules to help confirm figures in the financial statements. Preparing such schedules takes a lot of time because usually it’s for areas you only think about once a year, so you always have to stop and think about how you did it last year. Plus, the burden of creating these schedules is on top of your extra workload. When audits exceed their time budgets, tempers start to fray and it can be very stressful for employees unfamiliar with the needs of the auditor.
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.