Audited Financial Statement

When you need a business loan, creditors will ask to see your Audited Financial Statement, this is so they can assess the risk of them losing their money on your business opportunity.

It is important that Audited Financial Statement is prepared correctly as it provides a detailed breakdown of the financial viability of your business, this allows your potential lenders to be more confident in lending you money. Alternatively, if the statement is not prepared properly, the investors you’re presenting to, may feel uncertain about your business’ finances and not give you the business loan.

What is an Audited Financial Statement?

An audited financial statement is a financial statement that a certified public accountant (CPA) has audited. When a CPA audits a financial statement, they will guarantee the statement observes accounting principles and auditing standards; the document will then receive a CPA verification. If a CPA does not very a financial statement, inventors or financiers may not be convinced of the authenticity of your financial statement.

How does an Audited Report differ from other types of Accounting Reports?

“Auditing” and the CRA go hand-in-hand, this is due to auditing being associated with the CRA investigating taxpayers for tax-filing inaccuracies. However, it’s not all negative, auditing your financial statements can be very valuable to your business. To illustrate why, see an audited report to two other types of accounting reports.

Audited Report:

1. Reports involve a detailed review of every entry on a financial statement; it involves internal protocol testing to ensure your report accurately reflects the way finances are moved around in your company

Other Accounting Report:

1. Compiled Report – Accountants generate this report by compiling your financial records in accordance with the industry-standard format. In compiling this report, your accountant will not verify whether the financial data you’ve provided is accurate, they will simply compile the report
2. Reviewed Report – Reviewed reports undergo higher levels of scrutiny, compared to compiled reports. Accountants will deploy limited analytical procedures and submit a small number of inquiries to your management. As a result, your accountant will be able to determine whether your financial statements need changes, your accountant will also ensure that your financial records are compiled in accordance with the industry-standard format

Who should prepare Audited Financial Statements?

Every business presenting their financial documents to potential financiers should prepare audited financial statements. Audited financial statements reduce the chance of errors occurring, thus, financiers will often ask for audited financial statements, as opposed to unaudited financial statements.

Furthermore, if your business is publicly traded, audit financial statements will need to be prepared annually.

Types of Audited Financial Statements

There are four categories of financial statements that merit auditing:

1. Balance Sheet – Sheets detail your business’ total assets, shareholder equity, and debts (if applicable). It is the equivalent of a statement of financial position, meaning it’s a snapshot of your business’ financial performance
2. Cash Flow Statement – Statements detail the sum of cash (and cash equivalents) flowing in and out of your business’ bank accounts. Cash equivalents include overdrafts, bank deposits, cash-convertible assets, and short-term investments

• Income Statement – Statements detail your business’ revenue after expenses and losses are deducted. It is the equivalent of a statement of profit and loss, meaning it’s an overview of your business’ financial performance

1. Statement of Shareholder Equity – Statements detail changes to your business’ value to shareholders, during an accounting period. Increasing equity signifies good business practices while decreasing equity signifies bad business practices

What are the stages of an Audited Financial Statement?

A certified public accountant auditing a financial statement will typically follow these steps:

1. Industry research and risk assessment: CPAs have a wide-reaching knowledge of the accounting industry. Having this, they will be better equipped to identify risks that could affect the accuracy of your financial statements
2. Internal control testing: CPAs will examine your business’ internal controls to better understand the processes for employee authorizations, a delegation of responsibilities, and asset protection. After understanding the processes, control procedures will be conducted to verify their fortitude

• Thorough statement verification: CPAs will verify every entry on a financial statement, in-depth

What is included in an Audited Financial Statement?

An audited financial statement includes the following information:

1. CPA verification: When tracking all of your business’ spending and earning, human error is going to happen, even if you are very meticulous. CPAs audit your financial statements, to minimize these errors and make your statements more and more accurate
2. On-site inspection: CPAs will go over all of your business’ financial data, in order to form an audited financial statement. They may also personally inspect your business’ inventory to ensure there are no discrepancies in stock counts

• Internal control inspection: If you have employees who monitor your business’ spending, with little to no supervision, CPAs may inspect their work. This is to add another layer of examination and minimize accidental errors or potential fraud by your employees

Opinion Letter

To summarize all of the above information, CPAs will produce an opinion letter specifying their view of your financial statements. There are four types of financial statements, based on your CPA’s opinion:

1. Unmodified opinion: You have prepared your business’ financial statements accurately using standard and acceptable bookkeeping and accounting practices
2. Qualified opinion: Your business’ financial statements have been prepared accurately and in accordance with acceptable bookkeeping and accounting practices, however, there are a small number of discrepancies. Your CPA will detail the discrepancies and inform on how to fix them. Once rectified, you can seek an unmodified opinion

• Adverse opinion: Your business’ financial statements have not been prepared accurately and there are several discrepancies. As a result, financiers will not be able to trust the information your business has provided. Your CPA will detail the discrepancies and inform on how to fix them. Once rectified, you can seek an unmodified opinion

1. Disclaimer of opinion: Your CPA has not given you an opinion, due to a lack of access, information or time needed to complete an 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:

1. Creation: Any accountant can create an unaudited financial statement, however, only a certified public accountant can create an audited financial statement
2. Trust: When you present an unaudited financial statement to a financier, your statement cannot be trusted to be entirely accurate. Alternatively, an audited financial statement is professionally reviewed, eliminating any doubt surrounding its accuracy and trustworthiness

• Time: Unaudited financial statements are quick and simple to create; your accountant simply compiles all of your financial information into one document. On the other hand, an audited financial statement will typically take weeks to complete

1. Cost: Unaudited financial statements cost less money to create than audited financial statements. This does not require hiring a CPA.
2. Legitimacy: Audited financial statements are more accurate (and considered more legitimate) than their unaudited counterparts, thus, when applying for funding, it is in a business’ best interest to present audited financial statements

The differences illustrate that the principal characteristic of audited financial statements is the use of certified public accountants. To learn more about how certified public accountants differ from traditional accountants, visit us at rgbaccounting.com.

Source: business.com