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What Level of Audit & Assurance Services Are Right for Your Business?
Jul 11, 2022
Putting your business financials and processes under the microscope can be an intensive process.
At the same time, the benefits of your financials undergoing such scrutiny are hard to overestimate. The revelation of even a single red flag in your processes can turn an audit into cost-savings.
While many business owners see the trouble and cost of an audit as unnecessary unless they are required by a bank, an investor, or a prospective buyer, the practice of having an audit before you need one has saved more than a few businesses from problems that are far more trouble.
Even so, you don’t have to undergo a full audit to reap some of the same benefits.
The Right Process for Every Stage of the Business Life Cycle
At Kirsch CPA Group, we perform four levels of service, all of which can put your business on the right track with improved oversight, processes and safeguards in place:
- Audit
- Review
- Compilation
- Internal controls review
Below is an overview of the primary purpose and benefits of each.
Audited Financial Statements
An audit is typically performed at the request of a bank or investor and includes gaining an understanding of internal controls, and an attestation that your financials comply with generally accepted accounting principles (GAAP): the gold seal of accounting reliability.
An audited financial statement can leave your business well positioned for capital and business opportunities and provides you with a high level of confidence that sources of potential trouble have been surfaced and addressed. An accompanying report describes material weaknesses or significant deficiencies in an organization’s internal controls.
If you’re thinking of selling your business within the next five years, we recommend having your financial statements audited – or at least reviewed – annually.
Reviewed Financial Statements
A review is a step down from an audit and is performed by a CPA who provides limited assurance on your financial statements. Reviews are a more cost-effective solution than an audit but are without the full assurance of GAAP conformance.
A review is narrower in scope than an audit, while still providing an evaluation of your business’s books, thought the analysis is limited to analytical procedures, discussions and inquiries of management.
Many business owners find a review to be beneficial to their business even though it’s not required of them. An independent set of eyes on your financial statements can help provide extra security, guidance and give a level of confidence for you, your board, lenders, and investors. Some lenders and grantors may include an annual reviewed financial statement requirement in your loan or grant agreement.
Compiled Financial Statements
For the most basic needs, a compilation may be the right service for you.
A compilation gets your financial data into proper statement format. While it doesn’t include an analysis of your procedures or provide assurance of GAAP, it may be all you need to fulfill simple banking requirements or provide you with financial information that you can use to make key business decisions.
Internal Control Reviews: Peace of Mind without the Expense of an Audit
An internal control review provides some of the same benefits, but without the same full assurance of GAAP conformance. Even so, an internal control review is a powerful tool for safeguarding your business. The review is built around a series of interviews we conduct with your key team members to identify processes that need improvement, get to the root of any concerns or red flags, and ensure that sufficient safeguards are in place to prevent errors, fraud and miscalculations.
Interviews are typically conducted with your controller or whomever leads your accounting team and can also include interviews with managers in accounts payable, accounts receivable, billing, and payroll.
Like an audit, an internal control review includes a letter of findings and recommendations for tightening up weak processes. While it’s a less formal and detailed process than an audit, a review can provide the starting point for buttoning down processes across a wide range of potential trouble spots:
Payroll Process: to ensure you are paying employees only for hours worked
Who is approving payroll? What controls are in place to ensure that hours are recorded accurately? What is the process for approving pay increases and for reviewing weekly payroll?
Cash Disbursement: to ensure there is no misuse of company bank accounts and credit cards:
Is a bank reconciliation prepared monthly and by whom? How are bills paid? Who has check signing authority? How many approvals are required for large amounts?
Accounts Receivable & Billing: to ensure billings are complete and collectible
Do your processes ensure that all customers are invoiced in a timely manner? Are there safeguards in place to prevent missed billings? Are there good procedures for checking the credit of prospective customers? Are there strong policies around following up on overdue balances?
Why Conduct an Internal Control Review?
Whether you are running a for-profit or nonprofit organization, there are many reasons why an internal control review can be a valuable undertaking for your business, from fraud concerns to ensuring that processes are keeping up with transitions and growth. Safeguards and controls that worked when you were a $2 million organization are likely to be insufficient when you’ve grown to be a $10 million business.
If you’ve got a lot of new employees or new roles, it can also be a good time to put your processes under the microscope.
An internal controls review can also provide valuable recommendations for updating your technology as well as your processes.
Peace of Mind for Business Owners
No matter which form of assurance service you are interested in, Kirsch CPA Group can ensure that you’ve got the financial advisory and accounting support – and the peace of mind – you need.
Our holistic and comprehensive approach to supporting our small and mid-sized business clients and nonprofits is built around eliminating obstacles, rising to meet the challenges, and seizing the right opportunities at the right time. It’s about helping you meet your goals with the support and preparation you need at every stage.
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About The Author
Janis is committed to people and relationships. She has the ability to empower a business owner who feels…
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