Audits Add Shine to Firms

by Melinda Taylor

Cash flow is a continual challenge for many small businesses.  The recent economic downturn has affected many of our clients’ day-to-day operations and, ultimately, their working capital and cash flow. 

The repercussion of this is that many of our clients are accessing their lines of credit or obtaining funding to meet cash flow requirements.   Suddenly these business owners are tasked with providing financial statements to the lender in order to obtain funding. In times like these a good certified public accountant (“CPA”) becomes a lifesaver to your business.

What level of service (audited, reviewed or compiled financial statements) should a small business owner obtain from their CPA to meet the lender’s requirement? Will the lender accept a lower level of service that will not be as costly as an audit?

Compiled financial statements - An accountant prepares financial statements from information that is the representation of management (owners) but does not express any form of assurance or confirmity with generally accepted accounting principles (“GAAP”) on the financial statements.

Reviewed financial statements – An accountant must obtain a reasonable basis for expressing limited assurance that the financial statements meet the requirements of the GAAP and are free of material misstatements or false/missing information. 

Audited financial statements – An accountant will certify and provide an opinion that a company’s financial statements and accounting practices do or do not meet the requirements of GAAP based on the audit conducted. 

This Wall Street Journal article can provide some assistance in making a decision about the level of service you need. Though it emphasizes the importance of obtaining an audit, it also provides a cost benefit analysis.

Benefits of an audit:

• Improved chances for funding based on the lenders trust in the audited financial statements.
• Audited businesses save an average of $6,900 for every $1 million in outstanding debt every year due to lower interest rates.
• An audit provides third-party assurance that a Company’s financial statements are correctly prepared.
• Audit provides additional information on Company’s internal processes and focuses attention on areas that need improvement.

The Down Side:

• The cost of audited financial statements can be prohibitive for a struggling business.
• The time and preparation for an audit (records, personnel, etc.) can tax team members.
• Is it necessary?

Depending on the client’s situation, an audit might not be the right choice. 

Here at BCWS, we work closely with our clients and their bankers to ensure that the right level of service (audit, review or compilation) is provided as part of the funding requirement.

What has been your experience with your bankers, lenders and CPAs?

 

We’d like to connect with you! Please come find us at:

Our BCWS Blog or Our Website
On Facebook
On Twitter
BCWS’s Company Profile on LinkedIn