When and Why Does an Entity Need a Financial Statement Audit?

financial statement audit

Nearly a third of small businesses close because of cash flow issues. Business owners may have expertise in servicing customers, but they lack financial management skills.

Even with good bookkeeping skills, there are holes in financial management. There might be a lack of internal spending controls, few financial policies, or a lack of documentation and reporting.

You need to know where and how you can improve your financial situation. That’s where a financial statement audit can help.

If you want to improve business performance, keep reading. You’re going to learn what a financial audit is and why your business needs one.

What’s a Financial Statement Audit?

This is an independent review of your financial records. This is required by the Security and Exchange Commission (SEC) for publicly traded companies.

Privately-held businesses may need one to comply with state laws, private equity, and operating agreements.

Just because it’s only required for certain types of companies, it doesn’t mean that small businesses can’t benefit from one as well.

An independent auditor reviews a company’s financial statements and disclosures. At the end of the audit, they’ll issue a report.

An unmodified report is a positive report, where the documents are correct. They may also give governance letters that have recommendations for improvements.

Benefits of a Financial Audit

Why would you go through a scary process like a financial audit? One of the top benefits is to remove the conflict of interest in your financial reports.

This gives people in and outside of the organization confidence in your financial reports. This is important if you are getting a business loan or seeking outside investment.

Another reason is that independent auditors apply the same principles and standards to financial audits. This makes your financial information easy for everyone to understand, not just your internal teams.

A financial statement audit functions as a risk assessment. You get to uncover the potential issues in accounting and reporting. This reduces errors and costly mistakes.

Think about what a tax error could cost your business. It would be worth it just to eliminate that possibility.

How to Hire an Independent Auditor

You can conduct a financial audit yourself, or you can hire an independent company to conduct the audit. An independent audit lends more credibility to your business.

The first step in hiring a financial auditor is to create a request for proposal. This details the specifics of the audit and your expectations.

Ask auditors if they can advise your business or if they just audit. Visit bankruptcyinformations.com for an example of a firm.

Find out how experienced the auditors are in your industry. Get references from each prospective auditor and contact them.

Get Your Financial Reporting on Track

A financial statement audit is one of the best ways to uncover opportunities. You’ll improve financial reporting and business performance. Every business can benefit from working with an independent auditor to review financial statements.

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