Any type of audit can be a complicated and time-consuming activity for a business. However, a financial statement audit can be a collaborative procedure that helps your company to fulfill business goals. A skilled CPA in Nashville, TN, can always help in doing that perfectly. In this post, you will learn the most important things before getting financial statement audits. Keep reading.
What is a Financial Statement Audit?
A financial statement audit involves an independent accounting firm or other qualified third party evaluating your financial records. This type of audit is time-consuming as an auditor usually scrutinizes important data, analyzes operations, evaluates assets, determines tax liabilities, and complies with tax laws. An auditor gets evidence to support financial statements by contacting leading customers and suppliers. They also conduct a physical examination, get third-party assurance, and perform independent analysis.
Why Do a Financial Statement Audit?
Financial statement audits are usually conducted to protect investors and shareholders from unconfirmed and even fraudulent claims regarding your financial position. Here are the key reasons to perform a financial statement audit:
Satisfy Investors and Lenders
A bank may require a firm to perform a yearly audit to show accurate financials and maintain credits or comply with loan covenants. According to the Investor Rights Agreement, a company is required to prepare financial statements that are to be audited yearly by a Board-certified accounting firm. The current and future investors ensure that your financial records are accurate. Even though fraud isn’t common, it does occur. Frequent audits would prevent fraud activities.
Prepare a Company for Sales
Companies should file an S-1, which needs audited financial statements to go public. When it comes to private sales, target buyers will usually need 2 to 3 years of GAAP-related audited financials. The buyer and seller get benefits as the due diligence gets more smoothly and supports a proposed evaluation.
Deal With Suppliers
Audited finances may convince new suppliers to increase trade credit by proving a company pays on-time bills. Audited financials may make current suppliers feel confident when customers increase the order quantity on credit.
Valuate Employee Stock Ownership Plans
ESOPs can ask a company to share audited financial statements as the value of the option depends on a company’s value. For private companies, valuations depend on methods that require proper financial statement data. Ultimately, you get a comprehensive financial statement audit, which gives suppliers, investors, creditors, and other parties the assurance about accurate financial statements.
Now you know the most important things about financial statement audits. So, get it done whenever required to experience the benefits as discussed above.