When Should You Get an Audit?
The purpose of an audit is to provide reasonable assurance that a company’s financial statements are free from material misstatement. Reasonable assurance is not absolute assurance and therefore does not put your auditor at risk for your financial statements. Material misstatement varies by account, industry, and volume. Material misstatement is the amount that a financial account cannot be above, or the financial statements cannot provide reliable information.
Reasons you should get an audit:
- An Investor or bank requires you to.
- You have 1-2 million in revenue.
- You want/need to raise capital.
- You want to IPO.
- You want to sell the company.
How to choose the right auditor?
You want to make sure you’re hiring the right auditor for the job. Consider the following in your decision making process:
- Their Qualifications
- Industry Experience
- Use of Technology
- Quality Assurance Process
- Cost
- Their Reputation
- Support for Decision-Making and Growth.
How to evaluate a potential auditor’s qualifications?
Look for:
- Experienced professional development: Not just experience, but they need to have experience in your industry.
- Quality firms: AICPA has a peer review program to enhance reliability.
- Independence: If a firm is not independent, they can’t perform the audit.
- Licensing: Must be licensed in the state(s) they practice.
How to get audit-ready?
- Choose an Auditor: the Big Four firms are Deloitte, PwC, Ernst and Young, and KPMG. The mid-size firms are BDO, RSM, and Grant Thornton.
- Monthly Closing: Rather than keeping up with your books yearly or every quarter , keep up with this monthly.
- Utilize Your Resources: You may want to consider hiring an outside firm to ensure you have everything ready to be audited.
- Be Prepared: Ensure you have all documents the auditors ask for and provide them with all relevant information, documentation and data.
For more insight into best business practices, check out our other blogs and the Innovation Junkies Podcast!