Reliable financial reporting isn’t just a best practice—it’s a business necessity. Whether you’re a startup seeking investors, a growing business applying for a loan, or a contractor bidding on a government job, the quality and credibility of your financial statements can significantly impact your opportunities.
One of the strongest ways to enhance your financial credibility is by obtaining audited financial statements. But what exactly are they? Who needs them? And what benefits—and costs—should you expect?
In this article, we’ll walk through what audited financials are, how they compare to other types of financial reports, and how to know when they’re right for your business.
What Are Audited Financial Statements?
According to the [Indeed Career Guide](https://www.indeed.com/career-advice/career-development/what-is-audited-financial-statement), audited financial statements are documents reviewed by an independent Certified Public Accountant (CPA) to ensure they’re accurate and comply with generally accepted accounting principles (GAAP). The CPA’s role is to assess whether the financials fairly represent the company’s actual financial position.
An audit typically covers three main financial statements:
- The Balance Sheet (Assets, Liabilities, and Equity)
- The Income Statement (Revenue and Expenses)
- The Cash Flow Statement (Operating, Investing, and Financing Activities)
The result is a formal opinion from the auditor:
- Unqualified opinion: The financials are fairly presented and comply with GAAP.\
- Qualified opinion: There’s a limitation or deviation from GAAP, but financials are otherwise reliable.
- Adverse or Disclaimer of opinion: Rare, and a red flag for stakeholders.
An audited financial statement is the highest level of assurance a CPA can provide.
How Audited Financials Compare to Compiled and Reviewed Statements
Not every business needs a full audit. CPAs can also prepare two other types of financial statements, each offering varying levels of assurance:
| Type | Who Prepares It | Level of Assurance | Cost & Complexity |
| Compiled | CPA | None | Least expensive, very basic |
| Reviewed | CPA | Limited assurance | Moderate cost & depth |
| Audited | Independent CPA Auditor | High assurance (GAAP compliant) | Most expensive, most detailed |
Compiled and reviewed statements may suffice for small businesses not seeking financing or outside investment. But once external scrutiny increases, stakeholders often request audited financials.
Who Cares About Audited Financials?
You may not need audited financials for your day-to-day operations—but others might. According to [NetSuite](https://www.netsuite.com/portal/resource/articles/financial-management/financial-statement-audit.shtml) and [Business.com](https://www.business.com/articles/audited-financial-statement/), here are some of the most common stakeholders that may require an audit:
- Banks and Lenders: Many banks require audited statements before approving large loans or lines of credit.
- Investors: Audits build trust by validating reported earnings, margins, and cash flow.
- Bonding Companies: Sureties may require them for construction or public-sector contracts.
- Government Agencies: Some federal, state, and local contracts require bidders to present audited financials.
- Board of Directors or Shareholders: For companies with governance responsibilities, an audit can improve transparency and decision-making.
Think of an audit as a financial credibility badge—it says you’re serious about accountability.
Benefits of Audited Financial Statements
An audit is more than just a compliance checkbox—it brings real, strategic value. Some of the most cited benefits include:
- Credibility: Third-party validation builds trust with lenders, investors, and regulators.
- Accuracy: Auditors help detect errors, omissions, or misclassifications that may otherwise go unnoticed.
- Lower Financing Costs: Businesses with audited financials often qualify for lower loan interest rates due to reduced perceived risk.
- Operational Insights: Audit findings can uncover inefficiencies, control weaknesses, or data inconsistencies.
- Preparedness: Having accurate, GAAP-compliant financials positions your business for future events—like a sale, merger, or capital raise.
According to [Business.com] (https://www.business.com/articles/audited-financial-statement/), small businesses with audited financials tend to have better access to capital and stronger financial controls.
What Happens During a Financial Audit?
The audit process can feel intimidating—but it’s manageable with the right preparation. Here’s an overview of what to expect:
1. Engagement Letter: You’ll sign an agreement outlining the scope, timing, and responsibilities.
2. Planning & Risk Assessment: Auditors will assess internal controls and areas of financial risk.
3. Fieldwork: Auditors conduct interviews, request documents, and test transactions.
4. Reporting: After their analysis, auditors will issue their opinion and a final report.
You’ll need to provide access to:
- Bank statements and reconciliations
- Receipts and invoices
- Payroll records
- Contracts and agreements
While the audit typically takes several weeks, it varies based on business size and complexity. Working with your CPA and having organized records can streamline the process significantly.
Pros and Cons of Getting an Audit
| PROS | CONS |
| Builds trust with shareholders/owners | Can be time-consuming |
| Enhances financial accuracy and reliability | Higher cost compared to compiled/reviewed |
| Helps secure financing | Requires significant documentation effort |
| Identifies control weaknesses and fraud risks | May require changes to internal processes |
| Positions business for growth, investment, or exit | Potential stress during audit fieldwork |
The decision ultimately comes down to your business’s goals, industry expectations, and financing needs.
How to Prepare for an Audit: Quick Tips
Want to make the audit process smoother? Here are a few practical tips:
- Stay organized: Keep digital copies of receipts, bank reconciliations, and contracts.
- Close your books monthly: Regular closings reduce year-end pressure and errors.
- Implement internal controls: Processes like dual approvals for expenses improve compliance and audit readiness.
- Communicate early with your CPA: Ask what documentation will be needed months before the audit begins.
- Train your team: Ensure your finance and admin staff know what to expect and how to support the process.
Proactive planning can reduce audit costs and shorten the timeline—while improving the quality of your financial records year-round.
Lower-Cost Alternatives: Reviewed and Compiled Statements
If you don’t need full audit assurance, there are other CPA-prepared financial options:
- Reviewed statements provide limited assurance and involve analytical procedures and inquiries.
- Compiled statements are the most basic, assembling financial data without verification.
These options cost less and require less documentation—making them ideal for businesses that don’t need full GAAP compliance but still want CPA-prepared statements for planning, loans, or investor discussions.
Common Myths About Audited Financial Statements
“Only big corporations need audits.”
Not true. Many small businesses in construction, healthcare, nonprofits, and manufacturing are regularly required to provide audited financials due to industry or contractual requirements.
“An audit means my books are in trouble.”
Quite the opposite. An audit can highlight issues, yes—but its primary purpose is validation, not punishment. Many clean audits confirm a business is well-managed.
“Audits are just an expensive formality.”
A well-conducted audit provides real insights into business operations, controls, and compliance. It’s an investment in financial clarity—not just a regulatory obligation.
Audited Financials FAQ
Q: How long does an audit take?
Typically 2–6 weeks, depending on your business size, complexity, and recordkeeping.
Q: Do I need an audit every year?
Only if it’s required by your lender, bonding agency, board, or regulatory body. Otherwise, it’s optional.
Q: Are audited statements GAAP compliant?
Yes. That’s a key part of the auditor’s job—ensuring your financials meet GAAP standards.
Q: Can I switch from reviewed to audited statements later?
Yes, and many businesses do so as they grow or prepare for larger transactions or funding rounds.
Final Thoughts: Is an Audit Right for Your Business?
Audited financial statements are a powerful tool for building credibility, securing financing, and gaining clarity on your financial operations. While they require time and investment, the long-term payoff—especially for growing or externally funded businesses—can be substantial.
At Sorren, we help clients evaluate whether audited, reviewed, or compiled financials are right for them. If an audit makes sense, we’ll help you prepare, manage documentation, and coordinate with auditors to minimize disruption and maximize insight.
Ready to explore your options? Contact us today to talk about financial reporting that supports your business goals.
