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Why are Audits Important?

Why are Audits Important?

Why are audits important? An audit is important because it provides credibility to financial statements in your company. The credibility provided by an audit goes a long way to save you from many hassles and delays in the business world. The purpose of audits is to ensure that a company or business keeps accurate records and follows proper accounting principles.

Audits assure shareholders that the accounting records presented in the financial statement are fair and accurate. In addition, with the help of audit reports, companies can improve their internal controls and systems. And, if your company is audited, it can increase your chances of improving cash flow through financing, investors, etc. (more on that later in the article).

When is an Audit Required?

Now that we know why an audit is important for a business, let’s discuss when audits are required. So, when is an audit required? A business audit can be triggered by several events such as:

·        The need for additional information about your business (when seeking for financing, etc.).

·        A change in ownership of the company.

·        An acquisition that results in significant changes in operations;

·        Changes in laws or regulations affecting you;

·        Changes in policies and practices;

·        Internal control weaknesses identified during previous audits;

·        New management coming on board;

·        Significant losses reported by another entity;

·        Any other event which may affect the accuracy of your financial reports.

Audits are performed at different times depending upon when they are requested. For example, an internal audit can be done on regular schedules, quarterly, semi-annual or annually, depending on a business’s needs, circumstances, and schedule. However, an external audit is generally done once or twice a year.

That said, if it hasn’t been more than 12 months since the last audit was completed, then there will likely be no reason to perform one unless new issues have arisen. But if you’ve never done an external audit for your business, it may slow your business growth in many ways. 

The Difference Between Audit Financial and In House Financial

So, what are the differences between audit financial and in-house financial?

Audit Financial

Financial audits are usually performed by experts in financial reporting. These experts are generally from firms of practicing accountants. Thus, the financial audit is a vital assurance function that accounting firms provide.

Audit financials provide a summary of all transactions for an accounting period, usually one year or more. The report is based on information provided by the company’s accounts department or external auditors for credibility. Financial audits give details about:

·        The accounting period;

·        The transaction type;

·        The transaction description;

·        The amount of money involved in the transaction;

·        The date of the transaction. 

In-House Financial

In-house financial reports or statements help to establish how a company’s management is guiding the company. It entails the frequent compilation of financial information for use within the business or organization.

Usually, in-house financial reports contain confidential information, such as financial performance, business indicators, performance indicators, etc. However, they help companies make critical decisions. Therefore, you need to understand them because they give you important insights into the state of your business.

When you understand your in-house financials, you’ll know how healthy your business is and where it stands. So here are some things to check out for.

·        Cash Flow Statement

·        Balance Sheet

·        Income Tax Return

·        Cash Flow Analysis

How Audited Financial Help Company Take a financing

Are there benefits to having audited financial statements? Yes, your company can benefit tremendously from having audited financials. One of the ways an audited financial statement can help your company is in the ease of taking financings.

Good cash flow can increase the odds of a business surviving and thriving. And one of the easiest ways to increase your cash flow is through financing. That’s why the easier it is for you to secure financing, the better. One way to reduce the time needed to secure financing is by doing a financial audit for your business.

Recall that audits increase the credibility and value of your financial statements. Therefore, a company can use its financial audit report to gain better credibility while seeking financing. In addition, audited statements help your company be better prepared when you want to seek financial help.

How does a financial audit help give your company a better chance of securing financing? First, remember that audited financial reports assure investors, creditors, etc., that your financial statements are credible, fair, and accurate.

Let’s take a small business that urgently needs financing to increase cash flow or settle some pressing needs, for example. If that business is audited, creditors will be willing to give that company a financing at a glance. Why? Because the financial audit has given credibility to the company in their reports.

On the other hand, if the business in question has not been audited, creditors may hesitate before handing out a financing to that business. And the reason is not farfetched – they don’t trust the company enough based merely on internal reports.

So, if your company is looking to borrow, you may need an audited statement to support your financing application!

What Are the Advantages of Having an External Audit?

As a business owner, you may be tempted to think that an external audit is costly and unnecessary, But the external audit is important and brings benefits to your company. So, what are the benefits of an audit? Here are three significant advantages that external audits can provide you.

1.     Lend credibility to your financial statement

Once an external auditor audits and verifies your financial statements, that statement automatically becomes more reliable in the business marketplace. Usually, investors, lenders, and potential clients require externally audited financial statements before deciding to work with your company.

2.    Identify the weaknesses in internal control

Sometimes, there’s a possibility that a business misinterprets its financial information. In such a case, an external auditor helps to review internal control and also sets checks that reduce error, misinterpretation, or fraud.

3.     Gives you expert, unbiased views and recommendation

When you bring an external auditor on board, you get unbiased thoughts and opinions. An external auditor will not bring individual likes or dislikes to the job. Instead, an external auditor concentrates on improving your business.

Without an iota of doubt, financial audits are super important. Therefore, if you need help with your business finance, you can request financing from Lendo now and get it in a few days! Convert pending accounts receivables to cash right away! Just don’t forget to submit your financial audits so that all these can be done without delay!

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