Accounting Outsourcing | Are Audits Absolutely Necessary
When entrepreneurs are applying for loans, often they believe without checking with their bank that they need to provide audited or reviewed financial statements is accounting outsourcing. And while this used to be the case several years ago, banks and financial institutions are becoming far more relaxed on what they require when it comes to loaning money, even when itís large sums of money.
The reason why banks are relaxing their regulations on what they require when it comes to loaning money, is because rather than having audited financial reviews, to verify the numbers on what the company did last year, they are asking business owners to provide good interim statements, so they get a clear picture of what the business is doing currently. Since a lot can happen to a small business in a short period of time, the banks often want to make sure that the business is currently in good financial health, and are less concerned with how the business was performing last year.
Although audited financial statements are still more common for nonprofits, rules and regulations are being relaxed there as well says accounting outsourcing. The reason for that, is because it is becoming significantly more expensive to prepare reviewed financial statements as well as audited financial statements, and that is becoming far more cost prohibitive to nonprofits. Because the cost of preparing audited financial statements is so steep, many small nonprofits are not able to pay for the cost of these reviews, which puts them at risk for having to shut down. If the Board of Directors can relax the rules and require nonprofits to provide notice to reader statements instead of audited financial statements, they can save significant funds, which is a much better use of donated money than expensive audited financial reviews.
Because it used to be quite common for banks to acquire entrepreneurs to get reviewed or audited financial statements, many entrepreneurs still hold that assumption, and donít check with their bank before they ask their accountant to prepare and audited financial statement for them. Accounting outsourcing recommends that entrepreneurs double check with their bank to see what the requirements are currently, so that they can save valuable time and money and get the bank only what is absolutely needed. Despite the fact that many entrepreneurs believe that reviewed or audited financial statements are better, they are not necessarily better, more time has just gone into verifying the correctness of the numbers, and when preparing reviews or audits, the chartered professional accountantís first duty is to the bank and not their client.
There are many reasons why a business owner may need to prepare a notice to reader financial statements, and thereís fewer and fewer reasons that they would need a reviewed or audited financial statement. Business owners should ensure that what they are preparing is not more than whatís necessary, in order to help them save time and money, especially when applying for loans in order to grow their business.
One of the reasons why business owners may believe they need an audited financial statement accounting outsourcing, is because they are going to apply for a loan for their business. Business owners no longer require reviewed financial statements in order to apply for large loans, as often as they used to. Most small businesses and entrepreneurs can prepare notice to reader financial statements for their bank in order to qualify for most loans.
Business owners should understand the difference between the different types of financial statements that can be prepared, so that they can understand when itís appropriate to need each one. I noticed reader statement is one that has been checked to see if the numbers add up, that the bank numbers balance, the numbers are arithmetically correct, and therefore plausible. Accounting outsourcing says that reviewed financial statements have gone through testing to verify the numbers are correct and therefore the numbers are reasonable. Audited financial statements have actually had their numbers confirmed as correct by the accountant, by speaking with the bank to verify totals, and ensuring that the amounts outstanding in the business are correct. Because reviewed and audited financial statements take far more time to prepare, they are also much more costly for the business owner as well.
Business owners should also understand, that when they have asked their accountant to prepare reviewed or audited financial statements, the accountants main duty is to the person who has requested those financial statements. If a business owner is applying for a loan, the accountants main duty then becomes to the financial institution and not the client says accounting outsourcing. The accountant must remain at armís length distance from their clients, and is limited to the amount of consultation they can have with their client. Because of this, itís not in the business ownerís best interest to always get reviewed or audited financial statements.
It used to be required that business owners would have to provide reviewed or audited financial statements in order to qualify for large loans, because the bank wanted to verify how accurate the numbers were, in assessing how financially stable the business was. However those regulations are relaxing, because banks are finding that itís far more advantageous for them to find out how financially secure the business is currently, rather than how financially secure they were in the previous year. Since a lot can happen in a business in a short amount of time, banks are discovering that they get much better information if they require a notice to reader statement and then good financial statements in the interim.
The first thing that business owners should do when they are applying for a loan, is ask their bank if audited financial statements are absolutely necessary, and if the bank says they do, the client may be able to ask their accountant to verify that. Often business owners can avoid having to go through the time and expense of preparing audited financial statements in order to secure the loans they need to grow their business.