Accounting Outsourcing | When Are Audits Needed In Business
It used to be very commonplace for financial institutions to require any business that was applying for a loan would provide them with reviewed or audited financial statements is accounting outsourcing. This is becoming less and less commonplace, especially as banks discover that theyíre getting better financial information about businesses with interim statements. Entrepreneurs are able to provide notice to reader financial statements as well as interim statements, both provided by their chartered professional accountants, taking audited financial statements less necessary. However, there still reasons why businesses should be getting audited financial statements, we just need to know when that time is.
In order to understand when and audited financial statement is needed, accounting outsourcing says that business owners should understand what an audit is for, and who needs it. For the most part, the only time a business would need to provide a reviewed or audited financial statement, is when they have an external need for one. Whether itís for a bank or financial institution loaning the money, or a Board of Directors for not-for-profit, the only times a business owner would need to prepare them, is when they have an outside source requesting of them. A business owner will never need reviewed or audited financial statements for their own purposes.
Audited financial statements are most common when a large corporation is meeting tomorrow a significant sum of money is accounting outsourcing. Even businesses that have been obtaining loans of several million dollars are able to secure that to the financing on notice to reader statements, it would have to be extremely large loans that requires audited financial statements. This doesnít apply to most small businesses and entrepreneurs, so unless specifically asked, entrepreneurs should be able to provide notice to reader statements.
If a chartered professional accountant has a client that does approach them saying that they need audited statements, itís more than that chartered professional accountants scope to approach the financial institution themselves to determine if itís absolutely necessary. Not only is it very time intensive and costly, if the bank also requires interim statements prepared by an accountant in addition to the audited financial statements, this can be problematic and difficult for most businesses.
Accounting outsourcing says that if a bank requires audited financial statements, the CPA who provides that, is not allowed to provide the interim statements because they would not be considered impartial providing the interim statements. In order for a business owner to hire two different accountants, one at a firm that is not familiar with their files, may be extremely difficult as well as costly for a business owner. Because of this, banks that require accountant prepared interim statements generally are allowing those entrepreneurs to provide notice to reader statements instead of reviewed or audited financial statements.
By understanding exactly why financial institution would require an audited statement, and whatís absolutely necessary, business owners can processes and spending more money than they have to.
Too often, entrepreneurs are being told that they need to provide reviewed or audited financial statements, so without questioning why they approach their accountant for these statements and itís not necessary says accounting outsourcing. Even though many banks are relaxing the rules around what is required in order to obtain loans, this is not being indicated to all entrepreneurs, or then being told they must provide audited financial statements to qualify for a loan.
This can be extremely difficult for many small businesses, mostly because preparing audited financial statements is a very time consuming process, and therefore a very costly one as well. Since 29% of entrepreneurs who fail in business, say that the reason why they fail is because they ran out of money, entrepreneurs need to be very wary of how theyíre spending their money. If the bank is requiring audited financial statements, a business owner should do their due diligence to ensure that it is absolutely required.
Even though banks are relaxing their rules, itís still usual for nonprofits to have their Board of Directors request they get reviewed or audited financial statements for their year-end financials says accounting outsourcing. However, this can be extremely difficult especially for small nonprofits, because this year scope of creating the audited financial statements is so huge, and costs so much, that spending a significant portion of their funds that theyíve got donated to the year on year-end financials doesnít make a lot of sense. Accounting outsourcing recommends that the Board of Directors confirm with banks that reviewed and audited financial statements are less common, so that nonprofits donít have to spend so much of their yearly budget on accounting.
If businesses are required to get audited financial statements as well as interim statements, this may force a business owner to have to hire two different chartered professional accountants, because an accountant that is preparing an audit, must remain impartial and unbiased says accounting outsourcing, therefore they are not able to provide the interim financial statements. If an entrepreneur has been asked to provide both, they should check with their accountant to see if they work closely with another accountant so that the business owner knows that the accountant that is working on their interim statements, has a good relationship with the accountant that is familiar with the file. This way, a business owner can provide the documentation thatís required to the bank, while ensuring that both of the accountants that are working on their file have good resources to make sure all the information is correct and accurate.
Business owners should double check with their financial institution on what is absolutely necessary when there applying for a loan, and shouldnít be afraid to ask their accountant to follow up with their bank in order to ensure that what is being prepared is whatís absolutely necessary. A notice to reader statement is very accurate these days, because accountants are using great software to ensure numbers are accurate and well done, and banks can be certain that these statements are arithmetically correct and plausible. Together with interim statements that are well done, thanks can be assured that the financial health of the business is great on these two documentations.