External audits are a powerful tool that provide lenders and investors confidence that the financial statements of a business are free from material misstatements and are prepared in compliance with the U.S. Generally Accepted Accounting Principles (GAAP). Some companies are required to use external audits, but all companies can benefit from them.
A key hallmark of success in business is to perform better than last year, last quarter or last period. Metrics like increased revenue, profitability and decreased costs are essential metrics to every business regardless of industry.
The Securities and Exchange Commission (SEC) has issued a revised model for public companies’ audit reports. Previously a simple pass-fail statement was sufficient to meet the SEC requirements; but in the interest of investors and stakeholders understanding of a public company’s financial reporting practice, the reporting of critical audit matters (CAMs) is becoming mandatory.
Disclosure of the ratio of CEO’s annual compensation to that of median employees is a requirement for certain public companies as of 2018. The requirement gives leeway in the calculation, allowing ratios to vary greatly even within the same industry. Because of the ambiguity of ratio disclosure, investors and public companies should use caution when evaluating companies based on ratio disclosures.
Often, analytical procedures are thought to be used during the planning and review stages of an audit. While using analytical procedures during this phase is helpful, utilizing them to supplement substantive testing during fieldwork can be even more effective.
The Securities and Exchange Commission (SEC) dictates that public companies have to present their financial statements in the eXtensible Business Reporting Language (XBRL) format as an exhibit to their regulatory filings. XBRL has more uses than just for reporting to the SEC. Public companies, as well as private companies and financial statement users, will find many compelling reasons to expand their use of XBRL data.
Before giving the green light on your financial statements, auditors have to prove the effectiveness of internal controls. However, because of time and budget constraints, trying to analyze every transaction posted to the general ledger is impractical and not remotely possible. Preferably, auditors pick out and analyze a representative sample of transactions in order to form assertions about the whole population.
Auditors regularly comment that the tone at the top of the company flows downward, seeping into every employee level. Would you consider the work atmosphere of your company to be ethical and open? Corporate culture assessments can assist in preventing and uncovering unethical and criminal behaviors, if not. To do a thorough job, however, your external auditors will typically need to work closely with people inside your company. Read on for ways you can facilitate this essential part of the audit process.
Those who have closely-held businesses will need to advance money to their companies at times, whether to bridge a temporary downturn or to supply additional cash flow for a major expense, an expansion or something else. Are these advances supposed to be classified as bona fide debt, additional paid-in capital or something in between? Your answer, under U.S. Generally Accepted Accounting Principles (GAAP), will be determined by the facts and conditions of the transaction.
Breakeven analysis can be helpful when analyzing the effects of a cost reduction plan, investing in new equipment, or launching a new product. Calculating the breakeven point is pretty straightforward as you apply basic information from your company’s income statement. Here are the fine points.