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Accounting Outsourcing | Are Audits Required To Qualify For Loans
Business owners often believe that they need to prepare audited or reviewed financial statements in order to qualify for loans says accounting outsourcing. Although this used to be the case a few years ago, more and more financial institutions are not requiring business owners to provide reviewed or audited financial statements. There are several reasons for this, but as more and more entrepreneurs need loans in order to grow their business, many entrepreneurs arenít aware of these changed rules, and therefore approach their chartered professional accountant requesting audited or reviewed financial statements.
The reason why this isnít as necessary as it used to be, because banks used to want to ensure the viability of the business, and by getting reviewed or audited financial statements, the reliability of the numbers was very important says accounting outsourcing. However, banks are discovering that itís far more important to gauge the financial health of the business in its most current state, rather than last year, so theyíve been requesting accountant prepared interim statements as well as financial statements. The quality of the interim statements that the accountant provides is so good, and the information is more current, therefore they do not require anything more substantial than a noticed reader financial statement.
Many business owners who had obtained loans from their banks in the past, had to get reviewed or audited financial statements, and now that they are getting new loans, they will leave the same rules apply. Accounting and outsourcing says this is not the case, and often when a business owner approaches their chartered professional accountant in order to get better financial statements, this actually is no longer required. Business owners should always check with their financial institution to find out exactly what they require when they are applying for a loan, because as rules change, business owners should be aware. If itís no longer required to have to go through the expense and time of preparing reviewed audited financial statements, itís in the business ownerís best interest.
The reason why itís in the business ownerís best interest to not have to get reviewed and audited financial statements as well as interim statements, this is accounting outsourcing is because if an accountant is preparing reviewed or audited financial statements for a business owner, there fiduciary responsibility is to the bank and not to the business owner. That means, that the same accountants that is preparing the audit review cannot provide the interim statements. This can be a financial hardship to a business owner, as well as difficult to find an accountant who is unfamiliar with the files, to have to put here either the audit or the interim statements. Therefore, if business owners donít have to get audited or reviewed financial statements, itís in their best interest to not have to provide.
As more and more banks relax their rules about what is required when businesses apply for loans, accounting and outsourcing says that business owners should be aware, so that they donít end up having to put more time, effort and money into preparing their documentation.
There are some fundamental differences between notice to reader financial statements, reviewed financial statements and audited financial statements is accounting outsourcing. Noticed reader financial statements are the easiest to prepare, because all the accountant must do is confirm that the math is correct, therefore the numbers are believable. Reviewed financial statement the accountant must go through some testing to ensure the reasonability of the numbers. In audited financial statements, chartered professional accountants have to confirm that those numbers are accurate, and they do this by confirming with banks actual totals, they ensure balances outstanding are the correct balances, and that that money is coming in.
Financial institutions used to require entrepreneurs provide audited or reviewed financial statements when applying for loans, because the banks wanted to ensure the financial stability of the business. Because the reviewed or audited financial statements were tested or confirmed as accurate, they saw these as a better proof of income then noticed reader statements, which only had to be mathematically correct. However, financial institutions are discovering that as good as reviewed or audited financial statements are, finding out how financially secure the business was in the previous year is not as important as finding out how financially secure the business currently is says accounting outsourcing.
Because of this, banks started requesting that business owners provide accountant prepared interim statements, as well as year-end financial statements. Because it is difficult to have the same accountant prepare reviewed or audited financial statements, as well as good interim statements, they have started relaxing their rules and allowing businesses to provide notice to reader statements as well as those interim statements, to allow business owners to have both documentation provided by the same chartered professional accountants.
Because banks have started to relax their rules, many business owners should confirm with their banks but they require, so they can provide them the documentation thatís required, without going to any unnecessary lengths. If a business owner can avoid having to use to chartered professional accountants in order to secure a loan, thatís in their best interest says accounting and outsourcing.
Even though the banks are relaxing their rules, many nonprofits are still being required by their Board of Directors to get reviewed or audited financial statements, which can be difficult for a number of reasons says accounting and outsourcing. The financial cost alone for reviewed or audited financial statements is financially prohibitive for a lot of smaller nonprofits. Accounting outsourcing recommends that Board of Directors of nonprofits relax the bylaws in order to allow charities to provide notice to reader statements, that can help them save the cost and time expense that having to have reviewed or audited financial statements cost them.
As more and more businesses require loans, thanks are relaxing their requirements to qualify, allowing entrepreneurs to provide notice to reader financial statements as well as good interim statements, that not only give the banks a clear picture of the current financial state of the business, and allows for businesses to provide them this statements that they need in a timeline and at a cost that is not financially prohibitive.