Not every small business need audited financial statements. There are a lot of things to consider for a small business before jumping to the conclusion that they need audited financial statements. The first thought of audited financial statements is the expense and how expensive it can be.
We will look at small businesses that need audited financial statements and also why some small businesses do not need audited financial statements.
What are Audited Financial Statements?
The term audited financial statements gets thrown around a lot in the finance, world, and by banks. What does it really mean? Audited? Financial statements mean that a company engages an independent auditor, which is a CPA or part of a CPA firm.
The auditor takes a risk-based approach and tests accounts of the financial statements. For example, an auditor may look at a sample of transactions from the cash account in the financial statements and verify that the sample of transactions does not have any exceptions.
Once the financial statements are audited by an auditor, the auditor expresses an opinion on the financial statements. In simple terms, this opinion by the auditor would say that the financial statements are good or not.
In auditor’s terms, they will assign a type of opinion over the financial statements, such as an unqualified opinion, or qualified opinion. Most financial statements receive and unqualified opinion, which is a clean opinion, and the one business want.
An unqualified opinion essentially says that the financial statements are presented fairly, it is not absolute assurance that the financial statements are presented free from fraud or error.
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Who Needs Audited Financial Statements?
It is not just small businesses that need audited financial statements. Medium and large businesses need audited financial statements as well.
With that being said, not every business needs audited financial statements some businesses just need their financial statements, compiled or reviewed. These are two other services that accounting firms offer in addition to audits
Businesses that need audits to include ones that have shareholders, are publicly traded, need to meet requirements, or are looking for a reasonable assurance of the figures presented in the financial statements. Nonprofits are also a popular segment that needs annual audits.
Banks, financing companies, and shareholders are three groups that often push for audited financial statements.
The Benefits of Having Audited Financial Statements
While audited, financial statements can be expensive, there are certainly some benefits that come along with getting financial statements audited. It is the highest level of assurance that can be provided for financial statements.
Again, this does not mean it is absolutely insurance, but instead reasonable assurance. Reasonable assurance essentially says that there is comfort on a majority of transactions, but not every single transaction has been reviewed or tested.
Audited financial statements, not only gift, comfort to banks and lenders, but also to shareholders that want to know the figures presented on can be relied upon with reasonable assurance. Having an unqualified audit opinion, gives comfort to the users of the financial statements.
The Drawbacks of Not Having Audited Financial Statements
Just as there are benefits to having financial statements audited, there are drawbacks to skipping an audit. Not having an audit can lead to a lack of confidence in the numbers presented in the financial statements.
Additionally, not having audited financial statements when required can cause companies to not meet loan or banking requirements.
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Should a Small Business get Audited Financial Statements?
When evaluating if your small business needs audited financial statements be sure to look at the whole picture.
Are you trying to give comfort to investors? Are you looking to take out a loan or meet current loan requirements? If so, these are all reasons that could trigger a small business to need a financial statement audit.
Where do I go to Find an Audit for a Small Business?
Two places to start out when trying to get a financial statement audit for a small business are asking a banker for a referral to an audit firm or asking other small business owners, who they use for their auditor.
If in doubt, you can always search for CPA firms near you and speak to a few of them. Once you find a firm that you believe you will be able to work with, you can engage them.
Just keep in mind small businesses generally don’t change auditors year to year, so try to make sure a long-term relationship will work with your auditor.
That is also why it is important to shop around in the first year and get multiple quotes for an audit fee because you will most likely be with the same firm for multiple years to come.
What is the Cost of a Small Business Audit?
A small business audit can run from $5000-$25,000 just as a ballpark on the low end. An audit fee depends on how complex the business is as a client to the auditor and the size of the business.
Keep in mind that audits are often annual expenses so this is something you may need to account for in your small business.
Audited Financial Statements for Small Businesses: Final Thoughts
Hopefully, now it is clear what an audit is, who performs an audit, how much it can cost, and a few triggers when small businesses need one.
Don’t be scared initially by the fee of audited financial statements for a small business, because many small businesses only need their financial statements compiled or reviewed. If you have any questions, be sure to leave a comment below.
