THE PURPOSE OF FINANCIAL STATEMENT AUDITS
As an experienced auditor, we attest to the validity of your audited financial

statements and other disclosures. The resulting financial statement audit

reports on whether your financial statements are fairly stated and free of

material misstatements. Without this report, your reviewed financial

statements lose their credibility.

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Financial statement audits verify your reported performance and financial

position. They also corroborate your own findings to ensure that you’re on

track to maintain your continued highest profitability.

 

Hiring Edofalltrades can pay dividends by finding any problems or mistakes

before they become unintended disasters. There are two main accounting

frameworks that have made audited financial statements more common:
1.    Generally Accepted Accounting Principles (GAAP)
2.    International Financial Reporting Standards (IFRS)

 

THREE STAGES OF AN AUDIT
We follow three primary stages for any financial audit:
1.    Risk assessment and planning. At this beginning stage, your auditor spends time learning about your business and business environment. This preliminary work helps your auditor gain an understanding about the way your business operates. The information helps the auditor assess potential risks that can adversely affect your audited financial statements.

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2.    Testing internal controls. This stage assesses your company’s suite of controls. Your auditor commonly uses risk assessment questionnaires to test your internal controls, focusing on areas like:
•    How well you safeguard your assets
•    Whether proper authorizations are in place
•    If you have a clear segregation of employee duties

 

Assessing your internal transactions can determine your company’s degree of effectiveness and control. Positive results mean the audit can go faster. If the potential for errors or misstatements are found, your auditor has to dig deeper to find the problem areas. This process, remember, only results in making your organization stronger.

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3.    Substantive audit procedures. The last stage includes an array of procedures and financial statement reviews, such as:
•    Cash review, to count your on-hand cash, review your bank statements, issue bank confirmations and check for restrictions on bank balances
•    Analysis, which looks for anomalies by comparing your current finances with forecasted, historical and industry results
•    Accounts receivable, an investigation of your collections, cutoff procedures and year-end sales, while confirming the balances in your accounts
•    Marketable securities, that reviews your transactions, confirms your securities and verifies the market value
•    Inventory, to obtain proof of your inventories, observe an inventory count, inspect shipping and receiving procedures, test your calculated overhead allocation, examine invoices, review production costs and trace inventory costs
•    Accounts payable, which tests your year-end cutoffs while confirming all accounts
•    Fixed assets, a review of your leasing documents, assets, authorizations for purchase and disposal, appraisals, amortization and depreciation
•    Debt, which examines your lease agreements, obtains confirmation with your lenders and reviews the minutes from your board of director meetings
•    Accrued expenses, to compare your balances to the previous year’s, examine subsequent payments and re-compute accruals
•    Expenses, a review of your transactions and expenses, while confirming any abnormal items with outside vendors and suppliers
•    Revenue, which examines sales documents, including transactions and sales returns in the last year

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BENEFITS OF FINANCIAL STATEMENT AUDITS
For publicly held companies, shareholders generally appoint the auditors. Public companies’ audited statements become part of their public record. Even some private companies choose to release their financial statement audits.

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Audits can deliver many benefits beyond assuring investors, stockholders and lenders, however. One advantage of a rigorous audit is that it provides insight into your firm’s management, highlighting areas that may improve the company’s processes or controls. We, the auditor, must communicate any negative aspects of the audit, like control deficiencies, to you. These reports enhance processes within the business, adding value to your company and aiding in your strategic planning processes.

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AUDITED FINANCIAL STATEMENTS FOR OTHER ENTITIES
Nonprofit or tax-exempt organizations must file Form 990 with the IRS. Private foundations file Form 990-PF (Private Foundation). While financial statement audits are required for all publicly held companies, other businesses and entities can benefit from a financial statement audit.

 

Nonprofits in particular receive the following nonprofit audited financial statements:
•    Balance sheet — or statement of financial position — is a summary of the liabilities, assets and net assets of your institution at a specific date.
•    Cash flow statement summarizes the resources available during its reporting period. The report tracks income and expenses. Projected cash flow statements show shortfalls during the budget and strategic planning process.
•    Income expense statement — or statement of activity — documents your organization’s financial activity over the course of a year or longer, reporting income minus expenses to show profit or loss.
•    Functional expenses statement reports expenses related to support and program services. Program service expenses are divided by your institution’s programs — such as management expenses.

 

FINANCIAL STATEMENT AUDIT COSTS
Hiring an auditor is a business decision, but cost isn’t the only factor. There are three layers of financial statement examinations:
1.    Compilation: information gathering
2.    Review: cursory examination of the data
3.    Audit: a detailed review of your finances

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Compilations are the least expensive option, and audits cost the most, but as is so often the case in the business world, you get what you pay for. If you’re not sure what you need, talk to us for straight talk about your financial statement review.