Does Your Business Need an Audit?

By: Pedro Rincón, CPA, CVA, Partner

As an owner of a privately held business, you may have concerns about why a company might need audited financial statements. Financial statement audits provide the highest level of assurance.  They can only be performed by a Certified Public Accountant.  Audits provide an unbiased, objective examination of the financial statements of the company, including the selective verification of specific information such as accounts receivable and inventory. Audits require gaining an understanding of internal controls, testing of selected transactions and communication with third parties.  At the conclusion of an audit, an auditor will issue a report on the financial statements, which can be shared with third parties, containing the auditor’s opinion as to whether the financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles (GAAP).  

While not required by law, there are some important reasons why an audit might be useful or required, for example:

    •    Investors, lenders or creditors may need to know the state of your current financial condition so they can base their financial decisions accordingly. With that said, your bank could request an audit, at your expense.

    •    If a company holds assets in a fiduciary capacity for an expansive group of people for business purposes. A good example would be an asset management company or a business that has more than 100 employees in its 401(K).

    •    In unique industries an audit may be required due to regulation. For example, Country Clubs whose bylaws require an annual audit or a not-for-profit who receives government funding.

    •    Succession planning is another reason a business owner may choose to have an audit. Having reliable financials is important when preparing a business for sale.
    •     For various reasons the owner(s) may make the decision to have an audit. This may happen in a situation where an owner wants their business to have a yearly “check up” exam. The audit exam may uncover problems that a business owner wasn't aware of, and knowing that the auditors come in once a year to take a close look at things keeps your business on its toes.

These are the main reasons that a company would need an audit. With this information you now have the ability to plan ahead and gauge when your company may need an audit. Make sure to talk to your CPA and discuss which type of audit is right for you. For more information call Osborne Rincon CPAs at 760-777-9805.