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Financial Statement Audit

Our financial statement audit services provide you with the assurance you need to make informed financial decisions. With a team of experienced professionals, we take a thorough and tailored approach to our audits, ensuring that your financial statements are accurate, compliant, and reliable.

When seeking financing for your business, lenders and investors often require a comprehensive understanding of your company's financial health to ensure they are making a sound investment. In addition to providing detailed financial statements during a pitch meeting, potential lenders may also ask to see an audited financial statement to further assess the risk involved in lending to your business. Understanding the difference between an audited financial statement and an unaudited financial statement can help you prepare to present the necessary information to potential lenders and increase your chances of securing the funding you need.

What is an audited financial statement?

A financial statement that has been audited by a certified public accountant (CPA) is known as an audited financial statement. During an audit, the CPA reviews the financial statement to ensure that it complies with generally accepted accounting principles and auditing standards. Without this verification, investors and lenders may not have confidence in the accuracy of the financial statement being presented.

How does an audited report differ from other types of accounting reports?

When the word "audit" comes to mind, people often associate it with the IRS investigating taxpayers for tax filing errors. However, audits can actually be beneficial for financial statements. To understand why, let's compare audited reports to two other types of accounting reports: compiled reports and reviewed reports.

Compiled reports are basic financial statements that any accountant can prepare by compiling financial records into a widely accepted financial statement format. However, the accountant does not check the accuracy of the information provided by the company. Reviewed reports undergo slightly more scrutiny than compiled reports.

Accountants use limited analytical procedures and submit inquiries to management to determine whether the financial statements need significant modifications. The accountant also verifies that the company follows generally accepted accounting principles, but does not test the company's protocols. Audited reports involve a thorough review of each item on the financial statement and internal protocol testing to ensure that the company's financial reports accurately reflect the movement of money. An audit is a proof that the financial statements are fully accurate.

Who should prepare audited statements?

For any company seeking funding from investors or lenders, it is essential to prepare audited financial statements. Most potential funders will require audited financial statements rather than unaudited ones because they offer greater accuracy and reliability.

Furthermore, if your company is publicly traded, you must produce annual audited financial statements, as mandated by federal regulatory bodies. While unaudited financial statements can be useful for internal financial assessments throughout the year, audited financial statements are critical for external reporting and compliance purposes.

Types of audited financial statements

There are four primary types of financial statements that may merit auditing:

  • A balance sheet is a financial statement that provides information about a company's assets, liabilities, and shareholder equity at a specific point in time. It is often considered a snapshot of the company's financial performance. 
  • A cash flow statement is a financial statement that shows the inflow and outflow of cash and cash equivalents in a company's accounts. Cash equivalents may include bank deposits, overdrafts, short-term investments, and other assets that can be easily converted into cash.
  • An income statement, also known as a profit and loss statement, is a financial statement that provides an overview of a company's revenues, expenses, and profits or losses over a specific period of time. It usually includes metrics such as gross profits, net earnings, revenue, expenses, cost of goods sold, taxes, and pre-tax earnings.
  • A statement of shareholder equity is a financial statement that shows changes in a company's shareholder equity over a specific period. It includes information on dividend payments, stock issuances, and other equity transactions. While often included in the balance sheet, it can also be prepared as a separate statement. An increase in shareholder equity is generally seen as a positive sign, while a decrease may indicate problems with the company's financial performance.

What are the stages of an audited financial statement?

A CPA auditing a financial statement will usually move through these three stages:

To conduct an audit, a CPA should perform industry research and risk assessment, test internal controls, and thoroughly verify each item on a financial statement. An audited financial statement includes CPA verification, on-site inspection, and internal control inspection.

After completing these steps, the CPA will provide an opinion letter. This letter will include the CPA's professional assessment of your financial statements and whether they are a true and fair representation of your company's financial position. The opinion letter can also include any concerns or reservations the CPA may have about your financial statements and their accuracy. It is an essential component of the audit process and provides confidence to investors and lenders that the financial statements are accurate and reliable.

To summarize the above information, your CPA will provide an opinion letter detailing their perspective on your financial statements. There are four types of CPA financial statement opinions:

  • Unmodified opinion, also known as an unqualified opinion, is given by a CPA when they believe that your financial statements are accurate and have been prepared using standard accounting practices.
  • A qualified opinion is given when the CPA finds some gaps or errors in your financial statement preparation, accounting, and/or bookkeeping. They will explain these problems and suggest ways to rectify them. Once you fix the issues, you can ask for an unmodified opinion.
  • An adverse opinion indicates that there are significant inaccuracies in your financial statements that investors, lenders, and other funders should not trust. Your CPA will explain how you can fix the problems and seek an unmodified opinion in the future.
  • A disclaimer of opinion is not an opinion at all but rather a lack of one. It indicates that your CPA did not have sufficient access to information or time to conduct a complete audit.

What is the difference between audited and unaudited financial statements?

When comparing audited and unaudited financial statements, you’ll notice the following key differences:

  • Preparation: While any accountant can create an unaudited financial statement, only a certified public accountant (CPA) is qualified to create an audited financial statement. 
  • Trustworthiness: An unaudited financial statement cannot be fully trusted as it has not been thoroughly reviewed by a professional. In contrast, an audited financial statement is meticulously reviewed by a CPA, ensuring its accuracy and credibility.
  • Time and Effort: Preparing an unaudited financial statement is a quick and simple process that can be completed in a short amount of time. However, preparing an audited financial statement can take weeks or even months due to the rigorous review and testing procedures involved.
  • Cost: Unaudited financial statements are less expensive to prepare than audited financial statements. This is because preparing an unaudited financial statement can be done by an in-house accounting team or a non-CPA accountant, while an audited financial statement requires the expertise of a CPA.
  • Legitimacy: When seeking additional funding for your business, audited financial statements are often required. Unaudited financial statements do not provide a guarantee of accuracy and are therefore not considered as legitimate by investors and lenders.
Low Value + High Risk

CHAOTIC

  • No formal analytic structure
  • No analyitcs management / occurs in silos
  • Employees’ analytic capabilities vary
  • KPIs undefined: based on ad hoc & chaotic metrics
  • Employees’ Low or mixed confidence in reports capabilities vary
  • Employees’ Low or mixed confidence in reports capabilities vary
  • Lack data-driven decisions
Low Value + High Risk

REACTIVE

  • No formal integrated enterprise reporting
  • Analytics management is departmentalized
  • Employees’ analytic capabilities Employee’s analytic competences vary
  • KPIs focus on the past: asking what happened last week/month/year
Medium Value + Medium Risk

DEFINED

  • No formal integrated enterprise reporting
  • KPIs focus on present metrics/real-time: asking what is happening today and why
  • Defined key metrics shown within dashboards and scorecards
  • Employee analytics competencies vary
  • Analytics management is departmentalized
High Value + Low Risk

MANAGED

  • Integrated enterprise analytics
  • Analytics management and processes exist
  • KPIs focus on future outcomes: measures leading indicators that provide prescriptive changes (e.g. how does changing x, y and z impact outcomes?)
  • Leveraging internal and external data
High Value + Low Risk

OPTIMISED

  • Integrate enterprise analytics (including advanced analytics)
  • Strong analytics management and processes
  • KPIs focus on predictionsL provide strong confidence levels for taking business actions
  • Data science is operationalised
  • Machine learning and AI analysis are used to project KPIs

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