Top 3 Benefits of Financial Statement Audits

It comes with no surprise that the work of an independent, external financial statement auditor, can come with some resistance from the company being audited. Not to mention the disruptions and headaches for auditees, such as:

• Interruptions in the accounting department’s normal daily operations
• Answering tons of questions
• The pain-staking task of providing countless invoices, customer receipts, bank reconciliations, check registers, etc

However, there is a silver lining. These temporary and short-term inconveniences can lead to long-term benefits that pay dividends far into the future. There are several immediate and long-term benefits to conducting an annual financial statement audit.

1. Companies that undergo annual financial statement audits are generally more profitable and better managed than companies that do not undergo financial audits. Selecting a diverse and well-respected Certified Public Accounting firm to perform an annual financial statement audit is not only critical to the overall success of the audit, but also important for establishing future success of the company. Experienced auditors have decades of experience with observing what great companies do well and what unprofitable companies do poorly. Identifying small opportunities for improvement can be the key to a company’s profitable future.

2. Financial audits improve communication between management and owners. Most business owners rely on management personnel to provide critical financial data. This data is needed to make crucial decisions for the company. If management anticipates an annual financial statement audit and is committed to the success of the company, they are more likely to provide more accurate and timely information to ownership groups. Management is aware that there’s a high possibility that the external auditor will uncover errors, whether they be intentional or unintentional. Therefore, there’s extra effort to provide useful financial information. As an added benefit, management will often view our firm as an important resource and contacts our firm throughout the fiscal year to avoid surprises at year end.

3. Companies that undergo annual audits are worth more than companies that are not audited annually. CPAs provide an independent objective examination of financial statements that are prepared by management. Users of these financial statements rely on the independent auditors’ opinion to ensure that the financial statements are materially correct. CPA audit firms provide reasonable assurance that financial statements are materially free from error, whether due to fraud or error. Also, buyers want to see a solid history of audited financial statements, usually three years, before making a decision to purchase a company. It becomes easier to attract investors, buyers, and lenders, if a company can demonstrate to outside parties that their financial statements are reliable. In turn, this makes a company more valuable and attractive to third parties.

There will always be exceptions to the benefits of undergoing a financial statement audit and several factors play into the profitability, valuation and communication of a company. To us, it's a short-term sacrifice for a long-term reward. The real question may be, can you afford not have an audit of your company's financial statements performed?Jason Martin, Senior Manager, CPA, CFE, MBAJason oversees audit, assurance and attest services for a variety clients within the governmental and private arenas.