Business Encyclopedia

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Audited Financial Statement

An Audited financial statement is any financial statement that has been audited by a certified public accountant (CPA). A CPA will guarantee that a financial statement follows general accounting concepts and auditing standards when auditing it. Inventors and lenders may be sceptical of the assertion you provide if you don’t have this CPA proof.

Who Is Obligated to Prepare Audited Financial Statements?

Audited financial statements should be prepared by every company disclosing its financials to investors or lenders. The vast majority of potential investors will demand certified financial statements rather than unaudited ones because the latter offers significantly less space for error.

You will also need to prepare annual audited financial statements if your company is a public company. While federal regulators require publicly traded companies to file audited financial statements, you can create unaudited ones regularly if they help you examine your finances.

What are the Examples of Audited Financial Statements?

The following are the four types of financial statements that may require auditing:

A Balance Sheet 

A balance sheet shows your organisation’s total assets, shareholder equity, and obligations at a specific point in time. It’s frequently seen as a snapshot of your business’s performance.

A Cash Flow Statement

The amounts of cash and cash equivalents going in and out of your company’s bank accounts are detailed in a cash flow statement. Overdrafts, bank deposits, cash-convertible assets, and short-term investments are all examples of cash equivalents. In addition, cash on hand and money held in demand deposits are both included in this type of statement.

An Income Statement 

An income statement, also known as a profit and loss statement, shows how much money your company has after all of its spending and losses. An income statement represents your company’s performance over time, whereas a balance sheet is a snapshot of its performance. Gross profit, net earnings, sales, costs, cost of goods sold, taxes, and pre-tax earnings are typically included here.

A Shareholder Equity Statement

While the statement of shareholder equity is frequently included as part of the balance sheet, it can also be created separately. It summarises all changes in your company’s value to shareholders during an accounting period. Increasing equity is a sign of successful business procedures, whereas declining equity could signify bad business practices.

What Does an Audited Financial Statement Contain?

The following information is included in an audited financial statement:

A Verification by CPA

You may make mistakes even if you diligently track all of your company’s spending and earnings. When you hire a CPA to audit your financial accounts, you can reduce the number of errors and get closer to total accuracy.

An On-Site Inspection

A CPA will go over your financials with a fine-tooth comb for an audited financial statement, but that’s not always enough. For example, if your financial statements include reports on your inventory, your CPA may review them personally to ensure there are no stock count gaps.

An Internal Control Inspection

Your CPA may inspect the work of employees that monitor your company’s spending, particularly if this personnel have little to no oversight or double-checking from other team members. That’s because, with such little control daily, there’s always a potential (although a small one) that these individuals will falsify your books or commit fraud.