An external audit is an examination of a business's financials conducted by an unaffiliated, independent CPA or CPA firm. The auditor attests to the viability of these financials and makes recommendations to management on ways to strengthen financial processes and accounting practices. Here are five ways small businesses gain value through external audits:
1) Marketing Their Accounting Strength - By publishing financial statements with an accompanying independent auditor's report, small businesses are showcasing their built up strengths in strong financial management and have a resource at hand to capitalize on opportunities to acquire new business partners, attract financial borrowing institutions or possible investors, and much more.
2) Strengthening Management Decision Making - Audited financial statements provide a high level of assurance in the truth underlying the amounts found in a business's accounting records. This assurance work provides management with a greater ability to make key strategic decisions since they have less doubt about the underlying financial health of their companies.
3) Financial Credibility - Many business relationships fail or never fully come to fruition because of the absence of trust or credibility. A company possessing audited financial statements is a company that has devoted time and money to be many steps ahead in having profitable business relationships by showing partners that their financial condition is fully vetted.
4) Safeguarding Against Fraud and Theft - An external audit done by a CPA firm takes full measures to examine the possibility of significant theft or fraudulent actions within a business. An external audit can be a great method to find evidence of fraud and theft and even more important, help a business establish effective processes to prevent or minimize fraud and theft.
5) Compliance - A CPA external audit can help a small business ensure their accounting processes are in compliance with legal authorities like the IRS and with contract based business partners such as a lending institution that requires a small business maintain a certain ratio of assets to liabilities.
We at Cloonan & Associates provide auditing and review services to small business clients. Please contact us if you would like to speak about a prospective engagement.