Does Your Business Really Need an Audit?

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Have you considered getting an audit for your business? You may if your business is growing. Or if you want it to grow. Or if you suspect something is wrong, have investors who are restless or just in general need to feel more in control.

But an audit may be the last thing you need. First, let’s take a look at the different type of financial procedures a CPA can help you with.

The four financial procedures your CPA might perform for you are:
(1) Review,
(2) Audit,
(3) Internal Control Audit, or
(4) Agreed upon procedures.

These are all technical terms that mean specific actions that your CPA will take in an examination.

Review. A review is an analysis of your financial statements. Your CPA will look at the percentages of gross profit, various expenses, and ratios and compare these to prior periods for your business and against industry standards. This is a very effective way to spot fraud because it will always show up in the financial statements.

For example, if an employee is double billing payroll, there will be a jump in the payroll numbers. If an employee is siphoning off cash from sales, the gross profit will drop.

Personally, I’m a fan of the review procedure in the right circumstances.  A lot of times, this will be more helpful than an audit.

Audit. An audit is often less effective at spotting irregularities.  An audit is more expensive and may not give you what you want. The audit is designed to make sure you are accurately reporting your financial results. So, an investor or lender in your company would love to see an audit so they have assurance that what you say about your company is correct. An audit isn’t designed to look for internal irregularities.

Internal Control Audit.As your business grows, you may want an internal control audit just to determine whether the systems you have set up could be made better. For example, the most easily embezzled item is cash. Cash controls often include separation of duties so that no one person controls enough of a cash flow process that it would be easy to embezzle.   This can be a great process for someone whose business is growing rapidly and they feel out of control.

Agreed Upon Procedures. “Agreed Upon Procedures” is simply a term that CPAs use to describe everything else. If you have a real concern about a particular portion of your business, then you may want to have this area looked at closely by a professional.

If it’s time for your business to get a higher level of accounting services from your CPA, make sure you’re clear on why you need the service and what your outcome is.

The secret to getting the most out of your professional advisors is understanding what your ultimate outcome is, stating that clearly and then taking the advice of the people you hire.

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