Audit. That word can cause dread and fear in many businesses. An audit from the IRS is never a fun experience and the common perception of an audit has been skewed because of this. In this article I will be talking about a different kind of audit, an audit of the financial statements, which can provide your business with many benefits.
According to the AICPA, the purpose of a financial statement audit is “to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework, which enhances the degree of confidence that intended users can place in the financial statements”. In simpler words, they give credibility and accuracy to a business’s financial statements.
When would a small to medium size business need this level of credibility and accuracy? Based on some of the reasons below, you may find one might be needed for your company:
- It’s required by a financial institution – This is one of the most common reasons for an audit. The demand for your company’s goods or services is outpacing your current capabilities so you would like to expand. To expand, you need an influx of capital and one of the best ways to obtain this cash is a loan from a bank. Part of the process of acquiring the loan may be a financial statement audit; this helps the bank immensely in valuing your company’s loan worthiness.
- You’re selling or purchasing a business– If you’re thinking about selling your business and want to receive the best possible offer, an audit can help you. With a financial statement audit, you will have a strong bargaining piece for the value of the business. If you are buying a business it will be vice versa. You will want to know the financial position the company is in to determine what you could offer for the business.
- Fraud– If you suspect there is fraud being committed within your company, an audit could help uncover the problem. This is never a fun subject to consider, but it can, and does happen within a business and an audit could help put a stop to it.
- Government contracts– Many businesses that bid on government contracts will need to have an audit performed. This could be a requirement in the contract so the government entity can be assured of your ability to complete the contract. Even if the current contract you’re in does not require it, the next one might, and having one performed annually can help you obtain more contracts.
There are numerous other reasons why a company would want an audit, but the main reason for them is simple. Whether it enables you to access extra funds, provide accurate financial statements for planning, uncover fraud, or expand your client base, a financial statement audit is one of the best ways to improve the overall value of your business.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.