Whether it is a bank, an insurance company, an advertising agency, or any other type of company, every business entity has to maintain accurate and crystal-clear financial records. A financial statement audit examines these records, alongside various disclosures, revealing financial insights that can help business owners make better, more efficient decisions. As you will see in this article, financial statement audits are not simply valuable, but critical for businesses, since they can provide a high level of assurance – and since they are required by law for companies that are publicly held. The Roseville financial statement auditors at Cook CPA Group invite you to read on to learn more about financial statement audits in California.
What is a Financial Statement Audit?
A financial statement audit is a financial assessment and report of a company’s finances. Typically, the analysis is conducted by an independent auditor who will assess every aspect of a company’s finances. After a thorough examination, the auditor submits a report containing relevant information. The information contained in a financial statement audit generally includes, but is not limited to, the following:
- Balance sheet
- Cash flow statement
- Income statement
Within a financial statement audit, the balance sheet provides relevant financial information during a set period, such as the end of a fiscal year. Part of the information contained in a balance sheet includes a breakdown of the company’s assets and liabilities. A balance sheet is necessary because it provides vital financial information to the company, allowing the business to make important decisions such as whether to apply for loans or purchase more equipment.
Cash Flow Statement
Financial statement audits typically include cash flow statements. The cash flow statement summarizes the flow of money into and out of the company, delivering insights about the company’s ability to pay its bills and maintain operations. The importance of a cash flow statement is that it gives a higher level of assurance to the owner or stakeholders of a business regarding cash management during a given period.
The income statement in a financial statement audit, similar to a balance sheet, provides essential information regarding a business’ finances by summarizing the company’s financial behavior during a set period. The income statement includes key information such as losses and revenue, enabling the business to gauge whether it is profitable and to what extent. Having multiple income statements also allows year-to-year comparisons and better forecasting for the future.
What Are the Elements of a Financial Statement Audit?
The Financial Accounting Standards Board (FASB) reports that the aspects of a financial statement audit include, but are not limited to, the following:
Put simply, assets are any physical objects or pieces of information that are of monetary value to your business. Assets may be “tangible” (such as industrial machinery) or “intangible” (such as copyrights).
Expenses encompass a company’s outflow of income. They are determined by all of the losses a company experiences – many of which are likely to be a result of operational costs. Examples of business expenses include bills, debts, tax liabilities, insurance expenses, legal fees, and purchases of equipment.
A company’s gains are the results of transactions that bring the company greater assets. Note that capital gains, or gains from the sale of capital assets, must be reported to the IRS. Our Roseville tax preparers can help you report capital gains (and losses) to the Internal Revenue Service in a timely and accurate fashion.
Financial losses happen when a business has more expenses than revenue. A business’ financial losses can occur for many different reasons. Losses can stem from normal day-to-day operations, or from extraordinary or irregular events, such as a natural disaster or a sudden change in marketplace trends.
Revenue refers to income a company gains when it sells services or products. Typically, the revenue of a company is calculated before any deducting the business’ expenses and costs. After these values are deducted, the company or business entity will have their net income.
California CPAs Offering Financial Statement Audit Services
Financial statement audits are vital to any business operation. They allow entities to present accurate and reliable information to potential buyers, investors, and others, while keeping the business in compliance with SEC regulations. Reliability and trust in your business will depend partially on having a financial statement made by a qualified, skilled and trusted external financial statement auditor. Not only can a financial statement audit benefit your company in terms of tax and financial planning – it can also boost the business entity’s reputation and image.
Having an experienced Roseville business accountant from Cook CPA Group will ensure you receive high-quality auditing services from start to finish. To speak with one of our skilled Sacramento CPAs in a free initial consultation, contact us online, or call Cook CPA Group today at (916) 724-1665.