Does Your Business Need a Financial Audit? How to Prepare
Erin Baas, Client Advisory Services Director
December 15, 2017
Unless your company’s industry requires one, financial audits are not mandatory. There are situations, though, where you might need one. If you’re applying for financing through a creditor, investor, or other lender, those parties may want assurance that the financial statements you present—
Income Statement, Balance Sheet, Statement of Cash Flows, and
Statement of Retained Earnings—are comprehensive and correct. Other situations may warrant an audit performed by a CPA. Maybe you suspect that an employee is siphoning off funds. Or you wonder if your accounting is absolutely in compliance with what’s required. You might be putting together a succession plan, and you want to be sure you’re handing off a clean set of books.
The Audit Process
Financial audits aim to accomplish two primary goals: to determine whether your company’s financial statements are accurate, and whether you’re following
Generally-Accepted Accounting Principles (GAAP), a set of complex rules adhered to by the accounting profession. If your company has been audited by a CPA, anyone who examines your financial statements knows they can trust your numbers. Expect to be asked a lot of questions. For example, your auditors may select specific transactions and ask you to provide documentation that backs them up. They will look at your workflow and your security procedures to get assurance that your financial data is being recorded correctly – and that it’s safe. When they’re done, they’ll have a thorough understanding of your company’s fiscal health.
If you think an audit is in your future, there are steps you can take immediately to make the process easier and faster. This will save you both money and time, since an audit can be time-consuming and costly. Being proactive now—building best accounting practices into your daily routine—will also help ensure that the data you give the auditor is accurate and comprehensive. Further, taking these steps will simplify
your life during the audit by minimizing questions. Here are some suggestions. Most are common sense, but they’re easy to neglect when you’re busy and simply trying to process transactions and payments.
Reconcile your accounts regularly.
Make sure you have supporting documentation for income and expenses. Categorize expenses carefully and correctly.
Maintain your accounting records in a digital format that is easy to share and edit. Use accounting software like QuickBooks.
Anticipate the kinds of items the auditor may request. These could include your General Ledger and internal financial statements, lease agreements, a list of fixed assets and related depreciation, and documents that explain your accounting procedures. There will be many, many more.
We hope you’ll
contact us should your business require a financial audit. Beyond learning about your company and conducting an audit whose results you can trust, we can also suggest ways to maximize your profitability and efficiency.
Erin Baas is a Client Advisory Services Director at Lutz. She began her career in 2002. She provides business accounting and advisory services to a wide variety of industries with a special focus on private physician medical practices and family office administration.
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