Worried About an Upcoming Financial Statement Audit?
A third party may require a successful and growing small business to have any audit. What they really want is assurance that the financial statements provided by your business are reasonably accurate and free of any major oversight or material errors. This assurance generally comes in the form of audited financial statements.
What You Need to Know
When undergoing a financial statement audit, an accounting firm, called an "auditor" in this context, will come to the place of business and require full access to financial records. The auditor:
- Is required to understand your business's internal controls and assess fraud risk, as well as to corroborate the amounts and disclosures included in your financial statements.
- Will inquire of management and others to gain an understanding of the organization itself and its operations, financial reporting and known fraud or error.
- Test documentation supporting account balances or classes of transactions.
- Observe the physical inventory count.
- Confirm accounts receivable and other accounts with a third party.
- Use inquiry, physical inspection, observation, third-party confirmations, examination and analytical procedures during the process.
When the auditor is done reviewing your records, it will issue a formal report that expresses an opinion as to whether the financial statements are presented fairly, in all material aspects, within the applicable financial reporting framework.
What You Need to Do
The auditor's responsibility is to express an independent, objective opinion on the financial statements of a company. To that end, your business will be required to do the following:
- Prepare and present the financial statements within an applicable financial reporting framework, including the design, implementation and maintenance of internal controls relevant to the preparation and presentation of financial statements.
- Ensure that financial statements are free from material misstatements, whether from error or fraud.
- Provide the auditor with all records and documentation and unrestricted access to those within the organization the auditor determines necessary in order to obtain audit evidence objectivity.
If your records or accounting system aren't sufficiently accurate or complete, an audit can stretch out and even may cause serious problems when it comes time for the auditor to issue the report. Few accounting engagements you go through as a business owner will be as complex as a financial statement audit. Fortunately, there's a lot you can do in advance to set the stage for a successful audit.
Give us a call. We'll explain the details of an audit, how audit rules may apply to your business, and help you get prepared.