There are many reasons why business owners might consider having a financial audit performed. Financial audits enhance the perceived quality of the information communicated in your financial statements, which enables you to use your financial statements as a tool for running your business and to provide reliable financial information to outside parties. Although financial audits do not provide absolute guarantees of the quality of information in your financial statements, they do provide peace of mind and confidence that your financial statements and records are materially correct. A financial audit also communicates to outsiders a positive sense of quality, not only as it relates to your financial statements, but to your entire business.
If you’re considering bringing an investor on board or taking on debt with a bank to grow your business, an audit is a common requirement for these types of arrangements. Having a financial audit performed prior to entering these discussions indicates your commitment to quality financial reporting, not as a necessary requisite to securing funds or a partnership to help grow your business, but as a measure taken to augment the value of your business in every way possible regardless of your capital needs.
If you believe that an acquisition transaction is even remotely possible, a financial audit will also communicate to potential investors, private equity firms and valuation specialists a high degree of quality of financial information they will use to evaluate a potential transaction.
If you decide a financial audit is something you believe will enhance your business, you will want to prepare for an audit as far in advance as possible. Effective preparation will help ensure that the audit goes smoothly, and your audit team can work through their requests efficiently, which in turn decreases additional billings and the time taken to complete the engagement. Here are a few actions that can be taken prior to the start of the audit that will ensure a smooth audit experience:
- Gain an understanding of all business processes that affect your financial performance and document these processes. This will assist your auditor in understanding who does what in the business and helps tremendously in the planning and risk assessment phase of an audit.
- Ensure that all balance sheet accounts have reconciliations performed on a monthly basis. Be sure your reconciliation is not general ledger detail. Keep a separate schedule or Excel spreadsheet of the invoices that make up the ending balance in the account.
- Review your business’s financial information in depth to identify any unusual trends you believe may be of audit interest and research the reasons and be prepared to explain the reason for these unusual trends to the auditors.
An audit consists of a few different phases. The phases, in order, are as follows:
- Planning and risk assessment
- Audit team is onsite for 3-4 days
- Field work
- Audit team is onsite for 1-2 weeks
- Review and quality control
In the planning and risk assessment phase, your audit team will work to gain a thorough understanding of your business model and your control environment. A few weeks prior to their arrival, they will assemble a list of requests they need to begin this phase. After planning and risk assessment concludes, the audit team will review their planning work and finalize the audit approach.
Once the audit approach is finalized and the fiscal year-end books are closed, your audit team can begin field work. The audit team will typically provide their list of requests for field work several weeks in advance to allow your team plenty of time to assemble all requested documents and records. You will want to set aside time on your finance/accounting team’s schedule to meet with auditors and discuss any questions your audit team may have. This collaboration is crucial in accomplishing a successful and low-stress audit.
After field work is complete, your audit team will begin the final phase of the audit – its review and quality control procedures to make certain sufficient audit evidence has been obtained and procedures have been performed to support the opinion in the audit report. Within a few weeks of field work concluding, you can expect to receive a client draft of the financial statements, the audit report, and the representation letter to make sure you and your team have a chance to look everything over prior to issuance.
The decision to have an audit performed represents a step toward the growth of your business. If you believe this is a service that would benefit your business, our experienced team has worked with many organizations through their initial audit and would be happy to discuss what that may look like for your business.
If you have any questions at all, don’t hesitate to contact one of our Henry+Horne restaurant tax professionals! For more information on how Henry+Horne can help with your audit, check out our audit services page.