Has a lender or other potential investor asked you to provide audited financial statements? While this request may surprise new small business owners, it's not an uncommon request to receive. And it can help your business in surprising ways. Here's what you need to know about audited financials.
What Makes Audited Financial Statements Different?
When you approach a lender, investor, vendor, or other institution to extend credit or take a financial stake in your business, you generally provide them with financial documents. This usually takes the form of three main financial statements — cash flow statement, balance sheet, and profit and loss statement. For many transactions, these statements by themselves are enough.
However, when asking someone to invest in your business in some way, you may have to provide proof that these statements are correct and accurate. This is done by having an objective public accountant audit them.
What Types of Auditing Are There?
There is no one single type of audit of financial statements. The depth that the accountant goes to is determined by which type you request. A compilation simply looks at the three reports and backup documents needed to present them. A business owner who isn't familiar with these statements may just need this type of help with presentation.
A review is slightly more in-depth and inquires into your accounting practices in a limited way. They generally ensure that you are practicing good accounting procedures in accord with GAAP, or generally accepted accounting principles. But the accountant doesn't render an opinion about your internal controls or processes.
The third type, a true audit, is an in-depth examination of how you do bookkeeping, quality control measures, checks and balances, individual transactions, and paper trails. While this full audit is more expensive, it is the most satisfactory to outside lenders. And it provides your business with important information on how to better handle your books for profit and accuracy.
What Do You Receive From an Audit?
Once the examination is complete, the public accountant attaches an opinion. This report states whether they found your books to be in compliance with accounting rules and procedures or not. If not everything was in compliance, you may receive a qualified or an adverse opinion.
These reports show you where the weak spots in your accounting procedures are and help you fix any problems before they cause legal or regulatory issues. Even though a bank may have requested them, you benefit in the long run.
Where Can You Learn More?
If you need to seek out audited financial statements, start by meeting with a certified public accountant in your area today. They can help you determine what type of audit you need and how to prepare for it. The audit itself may take some effort, but you'll be able to run your business with more confidence and possibly a bigger profit margin. Call today to make an appointment.Share