So, you’ve made the commendable decision to start an independent audit on your business. This should be a simple process that puts you in an incredibly advantageous position. For that to happen, you need to know the specific audit service you need, the precise time to launch the audit, and a preparation process that makes your life easier. This guide will explain how to decide all three of those key factors.
In case you missed it, the first part of this independent audit guide explains what happens during an internal audit, the most important things they accomplish, and the best reasons to start one.
Figuring out the audit service you need
Do you need an audit, a review, or a compilation? Professional organizations classify them as distinct services. Each option differs in thoroughness and has a different ideal use case, from securing a small loan to selling your business.
Compilations
Request a compilation when third parties, like lenders and stakeholders, would appreciate your business being verified by a CPA, but don’t have a specific interest in financial statements.
In a compilation, a CPA reads the financial statements to assess the diligence of your reporting. However, they won’t review the financial statements for pinpoint accuracy. The CPA also won’t give their professional advice or their assurance that the financial statements are faultless.
This basic level of third-party analysis can be good enough for vendors to give you a small loan, credit, or other financings, especially if you grant collateral.
Reviews
Ask for a review when you need to provide a basic level of assurance that your financial statements are errorless.
In a review, a CPA inquires and analyzes your financial statements in order to give third parties the comfort of knowing an assessment took place. The CPA will write a formal conclusion on whether your statements fit the financial reporting framework and whether changes should be made in pursuit of that standard.
This gives you peace of mind since, if your financial statements are found sub-par, you’ll also receive a report explaining what changes should be made.
Results from a review are usually good enough to land complex financing and credit agreements, even without collateral.
Audits
The results of an audit provide the highest guarantee that your financial statements are accurate.
A CPA will review the numbers in your financial statement and collect first-hand evidence via inquiries, inspections, observation, cross-checking with sources, analysis, and more. To go even deeper, they will thoroughly learn how your business’s internal controls work and then determine the risk of fraud.
To conclude, the CPA will write a report on whether your financial statements were prepared correctly and accurately.
You need an audit when you’re selling your business or pursuing high-level financing.
The best way to know undoubtedly if you need an audit, review, or compilation is to share your circumstances with an expert.
Once you’ve determined the level of service you need, the next step is planning for it and setting a launch date. The next part of this guide will tackle exactly when to start your independent audit, and how to get ready for it.
