Why you might need an audit of your financial statements
There are numerous advantages to conducting an audit of a company’s financial statements, particularly for privately held businesses with revenues exceeding $1,000,000. An audit provides the highest level of assurance that a company’s financial statements present a fair view (in all material respects). This assurance is provided by an independent third party. Audited financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the United States include accruals such as accounts receivable and accrued liabilities that are not typically included in certain tax basis financial statements. This provides stakeholders with a clearer understanding of the company’s financial position.
Here are several reasons why business owners and managers turn to ShindelRock for an audit of their financial statements:
1. Detailed Disclosures: Audits provide detailed insights into the company’s financial condition beyond what is shown in the balance sheet and income statement alone. This clarity is valuable to stakeholders, board members, and other users.
2. Financial Reporting Responsibilities: An audit helps management and other parties fulfill their financial reporting responsibilities, knowing that an independent party will review and test the financial records.
3. Internal Controls and Risk Assessment: Auditors develop an understanding of the organization’s internal controls and assess risks, which can lead to the identification of control weaknesses. They provide guidance on improving internal controls and reducing risk.
4. Process Improvement Recommendations: Auditors offer a unique perspective on the business and may suggest improvements in processes and financial statement presentation.
5. Access to Financing: Companies with audited financial statements may find it easier to secure financing, as lenders and investors often prefer the reliability and credibility provided by audited reports.
6. Credibility for Potential Buyers: Audited financial statements enhance credibility if potential buyers request financial disclosures during acquisitions or mergers.
7. Preparation for Going Public: If a company plans to go public, having audited financial statements beforehand helps identify and address internal control and financial issues early in the process.
8. Increased Credibility: Audited financial statements increase the credibility and reliability of the financial information produced by management, boosting confidence among users of the financial statements.
9. Promotion of Accountability: Using the auditor’s report promotes accountability among managers and employees. Knowing that the company undergoes regular audits encourages dependable accounting practices and management.
Audited financial statements are often required in various scenarios such as meeting debt covenants, fulfilling board requirements, and complying with regulatory mandates. The benefits mentioned above apply to companies facing these requirements as well.
Another option for companies not required to have an audit is to obtain reviewed financial statements. We detail the difference between a review, compilation, and an audit here.
If you think your business may require an audit or would like the peace of mind that a financial statement audit brings, contact a member of the ShindelRock audit team.
2 thoughts on “Why you might need an audit of your financial statements”
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Can you please explain why the financial statements with reported revenue over $1,000,000 merits the audits? What does the benchmark really means?
The $1M mark is a general rule of thumb. Usually at this level of revenue and activity the business is established and the internal workings of the company complex enough that it becomes increasingly difficult for a business owner to have an intimate knowledge of every facet of their business. They are relying on others and the information provided by others. This article lists the possible benefits of having an audit.
We have plenty of business who exceed this threshold who don’t get audits and their isn’t a need to. This is really just a mental sticky note to say, “Hey, let me think if it this might benefit the company.”