A financial statement audit doesn’t have to be a painful process. With good planning and communication, the process can be completed smoothly and timely. If you have a good auditor, then you can also learn even more about your business during the process.
What is a financial statement audit?
The purpose of an audit is to provide financial statement users with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework (such as US generally accepted accounting principles (US GAAP), cash basis, income tax basis, international financial reporting framework (IFRS), etc.).
An auditor’s opinion enhances the degree of confidence that intended users can place in the financial statements. Auditing in the US is governed by the American Institute of Certified Public Accountants (AICPA) and the auditing rules are referred to as generally accepted auditing standards (GAAS).
The audit is performed by an audit firm of your choosing.
Why should I have an audit done?
Companies that are publicly traded or in an industry regulated by the Securities and Exchange Commission (SEC) are required by law to be audited. However, private business and non-profits usually have audits upon request of the 3Bs (Banks, Boards, and Bonding Companies). Management will sometimes also want to do an audit as part of a control procedure or to reduce risks. However, if you have a specific fraud concern, you should have a forensic examination rather than a financial statement audit.
Some companies that are planning to sell or obtain investment dollars in the future, will obtain audits for the 3-5 years prior to the transaction for “seller side due diligence” so that they can command a higher price or better terms when it is time for their transaction.
If you are not required to have an audit, but would like to have a CPA come into your company, there are other services that you can select that are more customizable. Examples are reviews, agreed upon procedures, compilations, and consulting services.
How do I select an auditor?
The size, location, and scope of your company will factor in determining the audit firm you select. Generally, the larger your company, the larger the audit firm will need to be to have the resources to complete your audit.
The goals and the timeline for your company will also impact the type of audit firm you select. Also consider what kind of accounting resources you have in your company, and how specialized or complicated is your industry.
The most common reasons why a business would select a smaller local or regional CPA firm are:
- Smaller local or regional firms usually have less overhead and charge lower rates than the largest firms
- Smaller local or regional firms are used to dealing with smaller sized businesses and understand their resource limitations. They will tend to hold your hand more on the audit steps.
How do I verify the qualifications of my CPA?
CPAs licensed to practice in Texas are registered with the Texas State Board of Public Accounting (TSBPA). A database of licensed CPAs and their qualifications are available for review at the TSBPA website link below:
CPA Firms: http://www.tsbpa.state.tx.us/php/fpl/frmlookup.php
If you are in another state, most states’ public board of accounting will have a similar tool.