Most businesses are subject to a CPA financial audit or at least a CPA review. Typically it is an annual event and is conducted by an outside (external) CPA firm. Auditing is important in maintaining trust and efficiency within the financial markets. Without auditing, companies can misstate their financial records and performance and make themselves appear more profitable or successful than they are.
A financial audit often includes an evaluation of the company’s strategy and performance, information on risk management (fraud), a review of financial statements, process documentation, and accounting entries and data.
Before the audit
The preparations for an annual audit or review take place throughout the fiscal year of the business. Audit firms test the validation of processes against established documentation, verify the completeness of tasks, and test and verify that internal controls are in place.
Staying up to date with accounting standards and organizational changes during the year will reduce the time needed to make changes to comply with regulations during the audit. In my 30-plus years working in the accounting field, I have found that audit preparation can be done throughout the year to minimize the amount of work required during the audit process.
Using past audit experiences, accounting staff members know what to expect (what the auditors look for) and can update documents and other records during the year so they are complete when the audit takes place. While there could be new requests each audit cycle, many of them are repetitive year over year which makes the preparation process less demanding.
The audit process
Audit firms typically provide a list of requirements prior to the audit. The company point person, typically the CFO or other accounting representative, will develop a timeline and assign items to those individuals best suited to complete the tasks. All the data should be organized and submitted to the auditors per the completion due dates set by them to maximize the efficiency of the audit process.
Typically, audits consist of four processes: analytical review, inquiry, observation, and inspection. In the event of inaccuracy, the fifth process would be correction/recalculation. Obviously, the goal would be to avoid the need for #5.
The audit completion
Upon completion of the audit, the audit firm will prepare an audit report and year-end audited financial statements for the business. The first draft of both will be presented to the CFO (or another accounting executive) for review. Once accepted by the company’s executives, the audit firm will prepare and submit the final documents.
The purpose of audited financial reports is to add credibility to the reported financial position and performance of a business. Audited financial statements are important because they provide an outside look at accounting operations and the overall fiscal health of a company. Investors rely on these audited statements to determine whether the company is a worthwhile investment and how the company affects the overall business industry.
The audited financials also show that no fraud or corruption has been detected in the company and that existing shareholder investment is protected. As credit unions, our audits provide credibility for our member-owners and reassure them of where their money is going.