Did you ever wonder why a non-public company would elect to go through the process of having an annual financial statement audit performed by an independent CPA?
There are several reasons that an annual financial statement audit is considered to be a sound business practice. Some of the most important reasons include providing an independent assurance that accurate financial data is maintained to improve your operations and decision making, improving your credibility with lenders and potential buyers, and undertaking an assessment of potential fraud risk factors specific to your business.
In order for a company to succeed into today’s competitive business environment, they must have accurate financial information to make sound business decisions. As your company expands and becomes more complex by adding additional locations, departments, segments, etc., there is a greater likelihood for your financial records to be misstated by errors or fraud. A financial statement audit provides an independent assurance that a company’s financial records are properly stated in accordance with accepted accounting standards. When a company’s management is provided with accurate financial information, they are able to analyze trends that will ultimately help them make better decisions that will increase its profitability.
It’s also important for a company to have credible financial records if they are looking to secure funding for their business or if they decide to put their business up for sale. Most lending institutions, such as banks, require an annual financial statement audit as a condition of a loan. Having an audit gives a bank confidence in the company’s financial information in order for the lender to assess whether the company will be able to deliver on its promise to pay back the loan. In addition, when a prospective buyer is interested in buying a business, they will often request audited financial statements to base their decision on. Audited financial statements give the buyer confidence that the company’s financial position and results are accurate in order to derive the valuation for any proposed purchase.
Although it may be less common, fraud occurs in businesses from time to time and it can potentially be devastating when it happens. Sometimes fraud can be difficult to detect if there are multiple individuals involved in a fraud scheme. An audit will help assess fraud risk factors that you may or may not be aware of and could potentially lead to the detection of fraudulent activity occurring within the entity.
BS&P provides audit and assurance services of all varieties, including financial statement audits. If you find that your company is in need of a financial statement audit, please don’t hesitate to contact an A&A professional for assistance.
Author: Michael Migliore, Senior Accountant