Original article written by legacy firm, KDP Advisors (2025)
Audits—the word alone creates an uneasy feeling for many business owners, but it doesn’t have to! In fact, an audit can be an incredibly valuable tool for your business, helping you gain insight into your company’s financial health, build trust with shareholders and enable access to various sources of capital. In this guide, we’ll break down the essentials of an audit, what it is, why it matters, and how to get ready — so you can approach it with clarity and confidence.
What is an Audit and Why is it Important?
Definition and Purpose
An audit is an independent examination of financial statements to ensure accuracy and compliance with relevant accounting standards and regulations. It provides an unbiased view of your financial position and operating results, confirming that your financial reports accurately represent your business’s performance.
While there are several types of audits, this discussion is focused on the audit of an entity’s financial statements.
Benefits of an Audit
Why should you consider an audit? Here are some key advantages:
- Building Trust: Audits generally increase the confidence that external stakeholders (e.g., investors, lenders, suppliers, customers) have in your financial statements. An audit lends credibility to the numbers and builds trust.
- Risk Identification: An audit may identify potential risks and areas for improvement in internal control.
- Regulatory Compliance: Audits may be required to comply with legal and financial regulations.
Common Misconceptions
- “Audits are only for catching fraud.”
- The primary purpose of an audit is to provide assurance that the financial statements are free from material errors, whether caused by errors or fraud.
- “Only large corporations need audits.”
- Small and medium-sized businesses can also benefit from audits, especially if they are seeking access to capital to execute their business strategy or are looking to enter into a strategic transaction.
When Should You Consider an Audit?
Triggers for an Audit
You don’t need a specific reason to conduct an audit, but some common triggers include:
- Rapid Business Growth: Expansion often leads to increased complexity in accounting and financial reporting, making an audit beneficial.
- Investor or Lender Requests: Potential investors or lenders may require audited financial statements prior to granting access to capital to your company.
- Regulatory Requirements: Certain industries are required to undergo regular audits to ensure compliance with legal standards.
Proactive vs. Reactive Audits
It’s better to be proactive about audits than reactive. Conducting regular audits can help identify and address issues before they become significant problems. This approach also ensures that you’re always prepared should an audit be required unexpectedly.
How to Prepare for an Audit
Gathering Documentation
Preparation is key to a smooth audit process. Start by gathering essential documents, such as:
- Financial statements (income statement, balance sheet, and cash flow statement)
- Bank reconciliations and bank statements
- Accounts receivable and payable ledgers
- Inventory records, if applicable
- Fixed asset detail
- Tax filings and records
Organizing Your Financial Records
An organized approach to record-keeping makes the audit process quicker and more efficient. Using digital tools and accounting software can help maintain accurate and easily accessible records.
Communicating with Your Team
An audit may involve more than just your finance department. Communicate with your team (e.g., the operations and warehouse personnel for inventory observations) to ensure they understand the process and are ready to provide necessary information. Clear communication also minimizes disruptions to daily operations.
Choosing the Right Auditor
Selecting the right auditor is crucial. Look for an experienced firm with industry-specific knowledge and a transparent audit process.
What to Expect During the Audit Process
Initial Planning and Risk Assessment
The audit process begins with a planning meeting where the auditor discusses the scope, objectives, and timeline. A risk assessment is conducted to identify areas needing more detailed examination.
Fieldwork and Testing
During this phase, auditors perform detailed testing of financial transactions, account balances, and, in some cases, internal controls. Auditors will generally use sampling techniques and analytical procedures to determine the extent of testing.
Communication and Collaboration
Throughout the process, auditors maintain open communication to resolve questions and clarify discrepancies. Your team’s cooperation and responsiveness play a significant role in ensuring a smooth audit.
Final Report and Feedback
Once the fieldwork is complete, the auditor compiles a detailed report with findings and recommendations. The report is then shared with management and those charged with governance.
How Sorren Can Help You Navigate Your Audit
Our Expertise and Approach
At Sorren, we understand that each business is unique. Our approach is thorough, transparent, and tailored to your industry. Our team of experienced professionals is dedicated to making the audit process as efficient and informative as possible.
Why Choose Sorren for Your Audit Needs?
- Reliable Expertise with Local Firm Care: Our team brings the expertise of a Top 50 National firm, combined with the personalized service of your local firm.
- Industry-Specific Knowledge: We have extensive experience across various industries, ensuring your audit is relevant and insightful.
- Transparent and Collaborative Process: We work closely with your team to maintain clear communication throughout the process.
Conclusion
Audits don’t have to be intimidating. With the proper preparation and a trusted partner like Sorren, you can approach your audit with confidence and peace of mind.
Whether you’re looking to enhance transparency, comply with regulations, or gain strategic insights into your financial health, an audit is a powerful tool.
Thinking about an audit? Contact us today to schedule a consultation and ensure your financial peace of mind. We’re here to help you navigate the process with confidence and clarity.
Original article written by legacy firm, KDP Advisors (2025)
