Businesses of all sizes need to have their financial statements audited by a certified auditor in Australia.
It is crucial to understand that an audit is a very important aspect of a business’s success and better financial health. For decades, the financial statements of companies have been audited by independent auditors and auditing companies to foster confidence in the global financial system.
Are you confused whether you need a financial statements audit or not?
When do financial statements need to be audited? Whether you should hire audit firms in Australia or do it by yourself, in any way first and foremost, you will need to understand, what it is exactly, how it is performed, and who can perform a financial statement audit.
Let’s begin by understanding the basics.
What is a Financial Statement Audit?
A financial statements audit is a process of scrutinizing and examining the financial information of your business to ensure that it is prepared under the applicable reporting framework. These audits involve a thorough analysis of a company’s financial statements and are collected to be used to prove that a business’s financial practices are reliable.
The primary objective of this examination is to ensure that the financial statements and disclosures are free from material misstatements, omissions, or defects. Financial audits can be conducted by both internal and external auditors. The primary distinction between internal and external auditing is the external auditor’s objectivity and independence regarding the financial statements and internal controls audited.
Types of Financial Statements Audits
External Financial Audit
External audits are typically performed by a certified public accountant (CPA) and include a review of the financial statements as well as an examination of internal financial controls. It can be used to determine whether there are any misstatements or irregularities in the financial statements, as well as whether the internal controls in place to prevent fraudulent financial reporting are effective.
An external auditor’s findings result in an auditor’s opinion, which is included in the financial audit report. This opinion of auditing companies supplements the financial statements by assisting analysts and investors in gaining confidence in an organization’s financial condition and performance as stated by management.
Internal Financial Audit
Internal financial audits are performed by employees of a CPA known as internal auditor Australia to assess the effectiveness of financial reporting processes and internal controls. Internal audit teams may supplement the work of external auditors in some cases if a pre-agreed-upon plan is followed.
Internal audits assist an organization in improving its processes and internal controls by performing assessments to identify any areas of improvement or deficiencies in the controls and reporting process, as well as issues before they become significant errors. The findings of an internal audit, as well as the recommendations for improvement made by the internal audit team, are documented in a financial audit report that is distributed to the organization’s management and board of directors.
Now that we understand financial statements audits, the types of audits, and who conducts them, we will now discuss various reasons why your small business needs to have a financial statements audit done by professionals rather than doing it yourself.
Why are companies required to have their financial statements audited at least once a year?
1. Adequate Planning and Identifying Risks
Audit functions offer unbiased insights to improve the overall performance of your firm. Even if auditing is a continuous process of assessing business events, as a business owner, you cannot inspect your work. Financial statements audit can help you better safeguard assets and spot dangers. The initial stage of financial auditing is done by an audit team to effectively carry out an audit to carve out an effective plan to run an audit as well as assess and identify risks associated with the industry and business environment in which the company operates.
2. Internal Controls Testing
The chances of non-compliance are reduced when controls are effectively activated. When proper controls are in place, they lead to the smooth and efficient working of an organization. Internal control refers to the set of principles, procedures, and practices that companies define to ensure they keep a check on risk-causing factors and rectify the same to avoid losses or fraud.
Annual financial statements audit evaluates whether there are any material weaknesses in internal control over financial reporting; if so then you will need to make improvements before being able to issue a clean opinion on its effectiveness.
3. Gaining Valuable Insights
Internal audit functions give accurate insights to improve the overall performance of your firm. Even if auditing is a continuous process of assessing business events, as a business owner, you cannot critically examine your job. This means, by conducting an internal audit, you can better protect assets and identify risks with appropriate financial reporting and analysis. The results of an internal audit can be used to show whether or not expanding your business is a viable option. Profit margins, debt-to-equity ratios, and future cash flow projections (derived from cash flow statements) will all be important.
4. For Lender Requirements and Selling
One of the top reasons small businesses conduct financial audits is to obtain or renew a loan. Some lenders require an audit to determine eligibility for bank loans, lines of credit, and other types of loans. Even if it’s not required, a financial audit might make obtaining a loan easier and help lower interest rates. The income statement, balance sheet, and cash flow statement are all included in the annual audited financial statements review. Internal control over financial reporting audits, which are frequently combined with financial statement audits, can also be included in a financial audit.
5. For Professional Auditing Expertise
The operations and financial reporting of an organization are significantly affected by the changing economic and regulatory landscape. At such a time, auditing firms in Australia can offer a myriad of benefits to small businesses, given their experience and expertise in working for various industries. Providing a better understanding of how your company operates may help you make better decisions about its future course.
We hope you enjoyed reading this article. However, in the present context, auditors would consider a variety of emerging issues that could present new challenges. Your financial statements may also need to be audited for those reasons.
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