IS YOUR BUSINESS READY FOR AN AUDIT?
Lear n How To Ready
Your Business For An
Audit And What Other
Financial Reports Tell You
Preparing for an audit can be overwhelming and time-consuming,
and if you’re not ready, you may experience issues and significant
delays (maybe even additional audits!). Don’t get caught off guard.
If you adopt a “hope for the best but plan for the worst” mindset,
you can be prepared for virtually anything at a moment’s notice,
which is a particularly good way to come out on top if (and when)
your business needs an audit.
GROWING PAINS
As your business grows, you might find yourself in need of an audit.
A little foresight will help ensure you have nothing to worry about.
• Request A Physical Inventory Observation: Conduct a physi-
cal inventory if you think you will soon reach the point of hav-
ing an audit. Completing this inventory observation will make the
auditor comfortable with your inventory quantities right off the bat,
allowing them to provide a complete report on your balance sheet
and income statement. Also, with a physical inventory observation
done in advance, you could potentially avoid a scope limitation in
the audit report for the current year’s income statement.
• Provide Reconciliations And Account Summaries: The recon-
ciliations and account summaries of the opening balance sheet
and the current year in which you need an audit should also
be readily available. This helps the auditor review your balance
sheets while avoiding the hassle of trying to reconcile informa-
tion back to the trial balances.
• Prepare Control Narratives Of Significant Transactions
Cycles: Documentation of your significant transaction cycles
such as accounts receivable and accounts payable information
should be readily available. An auditor needs to understand the
significant transaction cycles and key controls that are in place,
along with each employee’s role throughout your business. Fur-
thermore, walkthroughs will be conducted, so it’s important to
have your team available to assist the auditor.
• Team Availability: Having your team accessible during the audit
process is vital. There will be plenty of questions and discussions
that occur throughout the audit. With a significant collaborative
effort, the time and cost of the audit can be greatly reduced.
WHAT IS YOUR FINANCIAL
REPORT TELLING YOU?
Depending on your needs, you have a few different options avail-
able to address your business’s financial statements. For example,
the following reporting options may be valuable to you if you just
need a financial statement that is not audited:
• Financial Statement Preparation: Under AR-C Section 70, an
accountant may prepare your business’s financial statements
(which is a non-attest service) without issuing a formal report.
With this work, your CPA takes your financial information and
provides a clean financial statement in accordance with a speci-
fied financial reporting framework such as accounting principles
generally accepted in the Unites States of America (U.S. GAAP)
and indicates that no assurance is provided on the finan-
cial statements. It’s important to note that even though this is
a cost-effective approach, your CPA isn’t required to make a
determination regarding independence and doesn’t have to
verify the accuracy and completeness of the information
provided by management.
• Compilation Work: With a compilation, the financials will be
accompanied by a written report. Similar to general financial
statement preparation, your CPA doesn’t need to be indepen-
dent. In cases where they are not independent, the report should
be modified. Additionally, the report is required to indicate that
the financials were not audited or reviewed, and that the accoun-
tant does not express an opinion on the financials. Compilation
work requires an accountant to understand the client’s business
and industry. This can be another cost-effective way for man-
agement to have a clean financial statement with a report from a
CPA to utilize internally or for external purposes.
At the end of the day, your needs will be determined by what you
need your financial reports to do. Oftentimes, management is just
looking for a basic financial statement that ties into their tax re-
turn as part of their year-end reporting, or maybe you need a clean
statement to provide to third parties such as a bank. Either a prep-
aration or compilation engagement may be viable options. You’ll
need to think about the extra cost associated with having a compi-
lation report signed by your CPA.
Understanding your options when it comes to your business’s
financial reporting and preparing for an audit is important for long-
term success. Taking action to prepare your business for a financial
reviews will help avoid any headaches down the road. Give me a
call at 216.573.9051 to learn more about your options and how you
can start preparing for an audit.
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