by Chris Arndt
Ostrow Reisin Berk & Adams Ltd. is an IMA member full-service accounting, tax and business consulting firm…
An audit. If your first thought when you hear the word “audit,” is a certain four-letter word you are not alone. Most people do not think of an audit as a good thing. Most people want to avoid an audit at all costs. But a financial statement audit does not have to be the enemy. We are breaking down the five big benefits of a financial statement audit. It is not your enemy. A financial statement audit can provide the following very beneficial details.
- Gives you an overview of your financial records and standing.
One of the most obvious benefits of a financial statement audit is the overview it delivers. The process of auditing offers the opportunity to review your financial statements and highlights any problem areas, which in turn gives you a chance to correct those issues. From the perspective of shareholders or potential investors, an independent audit lends credibility to your business or organization. As Amy Jackson, Manager with Red Granite and a member of ORBA’s Audit Services, states, “audited financial statements are issued with an opinion on whether the information is presented fairly in accordance with GAAP (Generally Accepted Accounting Principles). This opinion comes with a lot of responsibility and an auditor will not express a favorable opinion without ample evidence as to the accuracy of the financial information.” Even better, Jackson suggests making it an annual affair! As you will read in an upcoming blog, when preparing for fundraising, your company will benefit from having a history of externally audited statements. “These [statements] prove to lenders, customers or potential investors that your finances are materially accurate. This environment of accountability allows outside parties such as lenders, investors or other public parties to rely heavily on this opinion.” A positive opinion from an external auditor can only help, not hinder, your chances of landing a solid investor or lender.
- Highlights areas for improvement.
Once you have uncovered any problem areas, an audit allows you to target areas for improvement. It can clearly demonstrate gaps in your financials but also inefficiencies that may need addressing. Whether those are from an operational, procedural or accounting perspective, an audit can assess whether your internal controls are up to par. If there is a glaringly inefficient process messing with your company’s growth potential, an audit may find it. Performing an annual audit can fine tune those internal controls for more cost-effective operations over time.
- Here’s the surprising bit, is a conversation piece.
Never thought you would hear the words, “an audit is a conversation piece?” Well, you heard it here first. One of the benefits of a financial statement audit is that it provides ground for discussion about profit and loss. In some businesses discussing profits and in truth, losses, does not occur as often as it should. It is not always easy to pinpoint the reason behind the losses or to approach the conversation using the right framework. In the process of evaluating your financials, you may find clarity around line items reflecting losses and find ways to improve profitability. For example, as we covered in a recent blog post, it is important to remember to review your prices periodically. An audit can determine whether your price point falls within industry standards. Thanks to the close examination an audit provides, it is possible to see where you may be offering too large of a discount or too low of a price.
- Is an excellent risk assessment.
You cannot fix what you do not know is broken. Because an audit highlights those problem areas mentioned above, it performs as an excellent risk management tool. Jackson says, “Our clients benefit the most from an audit when they are open to hearing if their internal controls are properly designed, implemented, and working effectively and will take the time to consider the recommendations on how to improve this environment.” As part of an audit, your procedures regarding cash receipts, disbursements, and payroll are evaluated and suggestions will be made on how to decrease the risk of fraud in advance of more serious repercussions. Jackson points out, “auditors are a great resource for best practices in regards to the segregation of duties and overall organizational structure. Adding a simple procedure, such as having an employee outside the accounting department take deposits to the bank, can greatly reduce the likelihood of asset misappropriation. (in other words, theft.) Listen to your auditors; they are there to help!” Wise words, Amy!
- Acts as your safety blanket.
The future of auditing will incorporate analytics to measure quality and transparency and even real-time risk analysis so you can tackle those concerns as soon as they become apparent. Want to rest assured that everything is in order? Have an audit done. While many companies are required to have an audit performed for regulatory purposes, other more progressive companies will proactively have an audit performed as reassurance that they are meeting industry standards and benchmarks while protecting themselves from fraud!
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