What Is a Financial Audit?
Businesses produce financial statements (i.e., income statement, balance sheet, cash flow statement, etc.) to provide information about their financial performance to stakeholders, such as investors, employees, banks, regulatory bodies, and so on. Financial audits conducted by a qualified third-party (an auditor) can enhance confidence in your businesss financial statements and identify areas where your accounting processes could be improved. Find out everything you need to know about financial statement audits with our definitive guide. Financial audit definition  A financial audit, also referred to as a financial statement audit, is an objective evaluation of your companys financial statements. They are usually conducted on an annual basis. While financial audits can be conducted internally (by an employee), most of the time, your stakeholders will want an audit from an independent body. As such, youll probably need to reach out to a Certified Public Accountant (CPA) firm to conduct your audit. Ultimately, the aim of a financial audit is to ensure that your financial records are an accurate representation of your organizations financial performance. Although an audit of your financial statements may make you feel like youre under the spotlight, the process is intended to assure your stakeholders that management has provided a true and fair view of the businesss financial position. This confirms that your companys financial processes are all above board  minimizing the risk of fraud  and that your accounting documents arent covering up for any financial mismanagement. However, its also important to note that financial statement audits can bring value to your business by identifying controls or processes that could be improved, thereby enhancing the quality of your business. Financial audit vs. review  If youve decided to engage a third party to complete your financial statement audit, its important to understand exactly what level of service you need. CPA firms can perform three types of evaluations: compilations, reviews, and audits. A compilation is the least rigorous option, as it refers merely to the preparation of your businesss financial statements. Its relatively simple. Reviews provide limited assurance, whereas audits offer reasonable assurance (although it is important to note that a financial audit does not provide absolute assurance). In a nutshell, reviews are less detailed and provide a less comprehensive level of assurance, although they are usually cheaper than full financial audits. Ultimately, audits deliver much better value, while its also important to note that in some cases, audits are a legal requirement. Dont worry if youre nervous  financial statement audits can be frightening, but as long as you prepare adequately, you should be able to get through it with a minimal amount of fuss. You can take three basic steps before the audit gets started to ensure that youre ready. See our financial audit checklist for a little more information:  Implement robust accounting practices  Putting acceptable accounting practices in place year-round can ensure that your financial audit goes as smoothly as possible. Be sure to reconcile your accounts on a regular basis and document your expenses throughout the year. Review your financial information  It will also help if you undertake a mini-audit of your financial statements. Ultimately, your accounts need to be as transparent as possible. If you have a strong understanding of your accounting records, you can help the auditor by clearing up any questions they have as quickly as possible. Gather your documents  Finally, its a good idea to prepare a full list of the required accounting documents and provide it to the auditor before they begin work. This way, they wont need to spend additional time and money tracking everything down. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.