Accounting Outsourcing | What Are Audited Financial Statements
When entrepreneurs are applying for loans from their financial institution or bank, they often have to submit their financial statements says accounting outsourcing. It used to be very dependent on how much money the business owner was applying for, as to what financial statement was needed. While thatís becoming less and less the case, entrepreneurs should still understand what each of the three financial statements are, and when itís most likely they need to use each one.
Notice to reader financial statements are the most common that accountants provide to their clients says accounting outsourcing. When business owners are doing their corporate and fiscal year-end, accountants are preparing noticed reader financial statements to submit to Canada revenue agency. Itís also becoming more and more common for banks and financial institutions to require businesses to provide notice to reader financial statements when they are applying for loans. The accountant prepares these statements, ensure that the numbers balance, and that the financial statement is arithmetically correct and that the numbers are plausible.
The next type of financial statement is the review engagement. This contains the same type of financial information as the noticed reader financial statement, but the accountant has used testing to verify the reasonability of the numbers. Instead of being just plausible, the numbers in a reviewed engagement will be considered believable. This takes more time, and is reflected in the price says accounting
Audited financial statements contain the same information in the first two financial statements, except the chartered professional accountant has actually confirmed all the totals as completely accurate says accounting outsourcing. Accountants do this by going to the bank and verifying all of the numbers is accurate, calling vendors and customers to verify the amounts that are outstanding are correct, and that the money is still going to be coming. Instead of ensuring that the numbers are simply believable or possible, the numbers in an audited financial statement are considered accurate. This takes a significantly longer time to produce due to the amount of due diligence, and because of that is a much more expensive financial statement to produce. Business owners should understand that when they are getting an audited financial statement, the chartered professional accountants duty is to the external source that requires the financial statement, and not to their client. This means that the accountant must be unbiased and objective in order to provide the most accurate report they can. They also must remain at armís length from their clients during this process, which means they are not able to advise their client on anything.
Many business owners believe that reviewed engagements or audited financial statements are better simply because they require more due diligence to ensure their accuracy and because they cost more money, but accounting outsourcing says that this is not necessarily the case. Itís in a businesses best interest to get the noticed reader financial statement, and then be able to discuss strategies or receive advice from their chartered professional accountants.
It used to be extremely commonplace for banks to require businesses to prepare audited financial statements in order to qualify for loans says accounting outsourcing. However, this is becoming less covalent, in favour of banks requiring notice to reader financial statements along with good interim statements.
The reason why banks used to acquire audited financial statements, it was because they wanted to take extra care in ensuring that the numbers in the financial statement were accurate in order to loan money to businesses, but financial institutions are discovering that spending the additional amount of money to verify the accuracy of last yearís numbers is not as important as it is getting current financial statements in the business. Banks are requiring accountant prepared interim financial statements, in order for the banks to see the current financial health of the business says accounting outsourcing. Because of that, there allowing business owners to prepare noticed reader financial statements instead.
One of the reasons why itís very important that banks that require accountant prepared interim statements, allow business owners to provide noticed reader financial statements is because accountants that are currently working on a review engagement or audited financial statement is not able to prepare good interim statements says accounting outsourcing. The reason for that is because while accountants are working on audit, they must remain objective and impartial and they will be considered able to do that if they are working on interim statements at the same time. Therefore, if the bank is requiring reviewed engagements or audited financial statements, and it very difficult for the business owner to also provide good financial interim statements as well.
Because itís been seen as more important to have good interim financial statements, banks are relaxing their rules, and loaning extremely large sums of money, over several million to entrepreneurs that are providing noticed reader financial statements. Accounting outsourcing says that business owners should be very aware before they apply for their loan, what type of financial statements they require. If they approach their chartered professional accountant to ask for reviewed engagements or audited financial statements before finding out what the bank actually needs, they could be creating difficulties for themselves, as well as paying far more money than they may have to.
As banks change their rules, business owners should be aware of what is required when they apply for loans. If a business owner does require reviewed engagements or audited financial statements in addition to good interim financial statements, that may require the business owner to find a second chartered professional accountant went to work on their audited financial statements, and the other to work on their interim financial statement. If this is the case, entrepreneurs should ask their accountant if there is an accountant they recommend to the business owner or are comfortable working with in order to meet these financial requirements for their bank, and qualify for their loan.