Expert Answers to Your Financial Services Questions

Get answers to frequently answered questions straight from your CPAClub experts.

What does an auditor do?

A professional who is responsible for examining and evaluating the financial statements of an organization to provide an opinion on their accuracy and reliability. Here are the typical activities an auditor performs:

The auditor plans the audit, which involves understanding the organization’s business, risks, and accounting practices. The auditor also determines the scope of the audit and develops an audit plan.

Performs testing to verify the accuracy and completeness of the financial information presented in the financial statements. This involves examining and testing the organization’s financial records, documents, and procedures.

Evaluates the results of the testing to determine whether the financial statements are presented fairly in all material respects. The auditor also assesses the organization’s internal controls and compliance with laws and regulations.

Based on the results of the audit, the auditor provides an opinion on the financial statements in a formal report. The report communicates the auditor’s findings, conclusions, and recommendations.

After the audit, the auditor may follow up on any issues or concerns identified during the audit and work with the organization to implement any recommended improvements.

Why are audit and assurance important for my business?

Audit and assurance services are important for your business for several reasons:

Audit and assurance services help ensure that your business is compliant with relevant laws, regulations, and accounting standards.

Auditors provide an independent assessment of your financial statements, which helps ensure their accuracy and reliability.

Risk Management
Audit and assurance services help identify potential risks to your business, including fraud, errors, and non-compliance with regulations, and provide recommendations for mitigating those risks.

Stockholder Confidence
A positive audit or assurance report can help build trust and confidence among stakeholders, including investors, lenders, customers, and employees.

Process Improvement
Auditors often provide recommendations for improving your business processes, which can lead to greater efficiency and effectiveness.

Overall, audit and assurance services provide valuable insights into your business operations, help ensure compliance and accuracy, and build stakeholder confidence, which can ultimately lead to improved financial performance and growth.

What's the difference between an audit and a review?

An audit involves a more in-depth examination of an organization’s financial statements, while a review is a less intensive evaluation. An audit provides an opinion on the accuracy of the financial statements, while a review provides limited assurance.

What is an auditor's responsibility when it comes to fraud detection?

An auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements, whether due to error or fraud. In the context of fraud, the auditor’s responsibilities include:

Assessing Fraud Risk
The auditor assesses the risk of material misstatement due to fraud in the financial statements. This involves understanding the entity’s environment, identifying fraud risks, and determining how the risks might result in material misstatement of the financial statements.

Designing Audit Procedures
The auditor designs audit procedures to address the risks of fraud, such as testing for fictitious transactions or reviewing journal entries made outside normal business hours.

Obtaining Evidence
The auditor obtains sufficient appropriate evidence to support the audit opinion. This includes obtaining evidence and evaluating its sufficiency and reliability.

Communicating Findings
If the auditor identifies a fraud or suspected fraud during the audit, the auditor has a responsibility to communicate the finding to the appropriate level of management and, in some cases, to those charged with governance.

Do I need an audit?

If you own or run a company, at some point, you will need to consider whether to have an audit conducted. It’s the highest level of assurance you can get that your financials are in order.

Although you can initiate an internal audit at any time, it’s especially important to have an external audit performed by a third party if:

  • The company is backed by an investor who wants to ensure your financial statements are examined by a third party.
  • You’re operating a non-profit and need to follow state and federal requirements for audits.
  • The company is preparing to go public, which requires up to three years of audited financial statements.
  • You plan on selling your business. Serious prospective buyers will require an audit.
Should I start with a review?

A review is an evaluation of a company’s financial statements to provide limited assurance that they are free from misstatements, errors, or discrepancies, and that they are presented in accordance with generally accepted accounting principles.

While an audit goes in-depth into a company’s financials and provides a high level of assurance, a review is smaller in scope and provides limited assurance.

A review can be a good start for a company that wants to check for any glaring problems before proceeding with a full audit. It can also be useful in instances where a lender or third party will accept a review in lieu of an audit.

At CPAClub, we perform both audits and reviews, and if you’re unsure which is best for your situation, we can help with your decision.

How are audits normally done?

An audit is an independent examination of a company’s financial records to determine whether they are accurate and in accordance with accounting principles.

The goal of an audit is to spot problems, such as accounting errors or procedures that open you up to vulnerability, so they can be resolved. It can help identify and clear up issues that are negatively impacting a company’s bottom line and ensure there’s accurate information for making critical business decisions.

Although every audit can be unique, and there are many different types of audits, the examination of a company’s financial statements by a third party typically falls into four stages:

You engage with an auditing firm to outline objectives, procedures, and levels of engagement.

Internal Controls
Auditors review your financial records to establish accuracy.

Auditors will perform a series of tests, such as verifying transactions and following the path of procedures.

The auditors prepare a report outlining their findings and share it with the company.

What is the ideal frequency for accurate accounting or bookkeeping?

We advise adopting monthly accounting processes as a best practice. However, in specific scenarios with minimal transactions, such as during a start-up’s initial year, we can provide quarterly or annual accounting solutions.

For the majority of businesses, we generally discourage year-end or annual accounting. This is because it often involves extensive clean-up and urgent responses to numerous questions to meet tax filing deadlines. Moreover, waiting until the year-end may lead to missed opportunities for proactive growth strategy and savings throughout the year, as maintaing or reviewing your accounting records only after the year has closed might overlook potential avenues for optimization.

I've recently launched my business, and things are still relatively quiet. Is it necessary for me to hire an accountant at this early stage?

Certainly! Setting up initial accounting, establishing a smooth accounting and close process, and engaging in strategic goal-setting and best practices are highly beneficial for all small businesses, particularly startups unfamiliar with the intricacies of backend accounting. Starting with a solid foundation is key if you aim to build a lasting impact and achieve your targeted goals as swiftly as possible.

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