Audit: Consider it a Blessing and Not a Curse
When small business owners hear the word, “audit,” they can view it as either a strong positive or a negative for their business. Those owners who think negatively believe an audit to be time-consuming, expensive, and difficult to complete. If you are a business owner who thinks this way, consider these ideas: an audit can help you identify opportunities for growth, strengthen business relationships, and give confidence to your lenders.
Determine what type of audit you need for your business. Depending on your business size and reporting needs, you may not need a full audit. Talk to your accounting firm about receiving either a compilation or review instead. These types of services cost less than a full audit and may still fulfill your reporting requirements.
If you do receive an audit for your business, determine what set of reporting standards you would like to follow. Larger businesses follow GAAP (Generally Accepted Accounting Principles) accounting, which is a widely accepted accounting framework. You are welcome to adhere to GAAP, but you should also consider a newly approved framework called the Financial Reporting Framework for Small- and Medium-Sized Entities, which is also known as FRF for SMEs. This framework is sanctioned by the American Institute of Certified Public Accountants (AICPA), which is the same body that promotes GAAP. FRF for SMEs is a simplified framework that uses historical cost, reduced disclosures, and fewer book-to-tax differences.
Find an accounting firm to perform the audit with people that you trust and like. You may want to interview several accounting firms for comparison. Your accounting firm should offer professionals who can explain the audit process to you and can help you identify opportunities for improvement in your business. These professionals can compare your business to the other businesses they audit, which empowers them to help you improve your processes and controls. When these accounting professionals help you with your business, you will then develop stronger business relationships with your vendors, customers, and stakeholders.
If you require an audit, it is probably for a lender or group of lenders that has requested audited financials. Once you receive an audit report, your lenders will feel more confident about the accuracy of your financials. If your audited financials are strong, then it may lead to additional lending. If your audited financials show poor performance, then you can identify where you need to improve and focus your efforts to champion your business.