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Most people hear the word “audit”, think of the IRS, and shiver. But in the business and nonprofit worlds, a financial statement audit is simply a commonplace process used to provide information to various groups, including banks, investors, grantors and the state. Savvy business owners and nonprofit leaders know a well-kept secret: audits identify ways to improve internal controls, the bottom line and convey that information to all interested parties.
At Cray Kaiser, we say financial audits reveal blind spots. But we prefer the comparison a client recently made that equated audits to opportunities. He appreciated the chance to learn more about the financial operations of his company, specifically identifying ways to increase the financial reporting requirements, identify areas to reduce costs, and strategically identify opportunities that affect growth.
Financial Statement Audits Explained
Beyond the typical association of financial audits with the IRS, most people believe that an audit is being conducted any time they see professional accountants in their place of business. However, an audit is just one of three kinds of financial assurance procedures. From least expensive and least involved to most, financial assurance procedures include compilations, then a review and finally, an audit. An audit is the most detailed and involved financial assurance procedure, and it provides the most data to businesses that want to sharpen their financial reporting, identify internal control deficiencies and grow strategically. [Be sure to follow our blog to catch an upcoming post describing the differences between the three kinds of financial assurance procedures.]
Added Benefits of Financial Audits
Beyond meeting requirements from banks or potential investors, or as part of nonprofits annual tax filings, financial audits provide additional benefits and opportunities to create efficiency and influence strategy and growth.
Is a Financial Audit Right for Your Business?
According to Cray Kaiser Principal, Deanna Salo, “Management cannot make the right decisions without accurate, timely financial statement reporting. Having a financial audit, even if not required by bankers, investors or shareholders, can be a good way of re-tooling the accounting department and streamlining procedures and processes.” She also notes that an audit helps companies be proactive instead of reactive. One of the by-products of an audit is a management letter which includes recommendations for management. Audit recommendations always carefully balance the need for checks and balances with the cost of the employee time involved. Is an audit right for your business? Contact us to learn more.