The Benefits of Financial Statement Audits Go Beyond the Audit Report
Financial statement audits have benefits beyond the audit report.
Most businesses won’t get the benefits because they see the audit as a necessity to abide by the law, not to improve their business.
Small and Medium Enterprises (SMEs) rarely have the skills they need to build sound accounting systems in-house. They need the benefits a financial statement audit can offer beyond the audit report.
But a value adding audit costs more than an audit geared at compliance. Most small businesses don’t want to pay for the extra work to make the audit value-adding.
In this article we discuss the benefits a financial statement audit can offer beyond the audit report.
Benefits of an Audit
An audit can deliver these additional benefits:
- Identify weaknesses in internal control
- Identify business risks
- Provide insight into the financials
Identify Weaknesses in Internal Control
The goal of internal control is to make sure an entity:
- Achieves its business goals – runs an efficient and effective operation.
- Has reliable financial information – it can generate reliable financial statements.
- Complies with applicable laws and regulations.
The management applies processes throughout the company to get control.
A business may not meet the above objectives if there is a breakdown in its internal controls. An audit can give the business a sense of the strength of its internal controls.
During an audit, the auditor will report any weaknesses he finds to management and show how to resolve the weakness.
Business risk refers to a threat to the company’s ability to achieve its financial goals. In business, a risk means that a company’s or an organization’s plans may not turn out as planned or it may not meet its target[i].
The auditor carries out procedures to discover and assess risks that can affect a business’s ability to issue reliable reports.
In his report to management, the auditor will report the significant risks that he finds. In addition, he will report on the probable causes and actions that can mitigate the effect of the risk.
A financial statement audit can help a business understand:
- The effectiveness of the business’s financial processes.
- Inefficiencies, redundancies and risks.
- Its performance.
When the next audit is due, discuss with the auditor how you might get benefits beyond the audit report.
[i]CFI, Business Risk, A threat to the company’s ability to achieve its financial goal,https://corporatefinanceinstitute.com/resources/knowledge/finance/business-risk/