A financial audit is an objective examination of an organization's financial statements or internal controls. These audits are done by a third-party provider or by employees within the organization. There are three types of audits:
An audit is one type of assurance that an organization receives when the audit confirms the data and processes' quality. The audit is the review of the accounts or documents, while the assurance is the process analysis of those accounts or records. Once analyzed, the organization can make changes as needed and be "assured" they have accurate financials and processes in place.
Privately held companies in various industries, nonprofit organizations, government entities, and employee benefit plans all require some type of audit. Audited financial statements are needed for lenders, owners, shareholders, the board of directors, investors, or other organization stakeholders. These audits assure that the reported financial information has the highest level of credibility. The audit process provides leadership with the assurance that their financial reports are materially correct and compliant. Also, leadership derives value from the reported observations of their internal controls, systems, and operations gleaned from the audit process.
The best way to determine which type of audit you need is to contact a firm with audit experience. Once you discuss your needs, they can recommend the best audit for you. Sometimes a full audit is not needed and a review will meet your needs, saving you time and money. Below are some of the most common audits, as well as information on agreed-upon procedures engagements.
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Agreed-upon procedures engagements result from a request that specific procedures be performed by an external accountant who lends credibility to the results of tests, evaluations, and procedures on particular elements or accounts. Before performing the engagement, the accountant should work very closely with all parties to understand the processes desired, the extent of testing required, and the purpose for which the engagement was requested.
Excluding specific exceptions, federal law requires employee benefit plans with 100 or more participants (ERISA defined) include audited financial statements with the Form 5500 filing. Smaller plans may also require an audit if the plan does not meet certain conditions exempting it from the audit requirement. SVA's auditors understand the complexities of employee benefit plans and can focus on the prominent issues, providing valuable guidance to you as the plan sponsor.
Financial statement audits offer the highest level of assurance to outside sources and third parties on financial statements and financial statement elements. These audits include an in-depth examination and confirmation of account balances, inventories, and a sample of transactions.
Financial statement examinations provide a similar assurance level; however, this assurance is on the reasonableness of management assertions. Examples of these types of engagements include financial forecasts and compliance with laws and regulations.
An internal control audit has evolved from a compliance-based function focused primarily on detecting a strategic solution valued by executives and board members. The audit is a process to review operational effectiveness, efficiency, reliable financial reporting, as well as compliance with regulations and policies. SVA's experts help you build a competitive advantage by focusing on and improving your current risk management practices, control systems, and governance processes.
A SOC report is designed to assure third-party service organizations who are expected to have appropriate internal controls and safeguards in place when it comes to hosting, processing, or accounting for their customers' data and assets. Potential customers requiring a SOC report are becoming more common as internal control compliance issues are at risk when critical services are outsourced to a third party. Businesses that may require and SOC audit include:
Often, provisions of laws, regulations, contracts, grant agreements, or policies require an audit to be conducted according to Generally Accepted Government Auditing Standards (GAGAS), aka "Yellow Book.” Certain organizations that receive federal financial aid must submit reports and financial statements that have been audited by a CPA under the “Yellow Book” standards. The threshold for this varies depending on the grantor's requirements and/or the type of entity involved. In addition, other reporting requirements may stipulate that these standards be followed as well.
Organizations receiving federal, state, or county funding are required to have compliance audits that are in accordance with generally accepted auditing standards - the standards for financial audits under Government Auditing Standards. SVA's experienced professionals can perform an effective and accurate compliance audit, which helps the organization follow the applicable regulatory requirements.
Single audits are specialized and tailored compliance audits for organizations that receive certain levels of federal and/or state grant awards. These audits ensure that government funds are used for their intended purposes and vary in complexity depending on the level of grant funding the organization receives and the programs funded. SVA utilizes its extensive experience in working with federal and state-funded organizations to help with these special compliance audits requirements.
Financial statement reviews offer limited assurance to outside sources and third parties on the organization's financial statements and financial statement elements. These reviews involve a tailored combination of management inquiries and analytical reviews of financial information to identify any items requiring further investigation.
Financial statement compilations and preparation engagements offer no assurance but provide management with a formal set of financial statements for the organization and are used when bookkeeping assistance is required. Compilations include a standard accountant's report and are often used for external reporting, while preparation engagements typically exclude a formal report and are usually intended for internal use.
Financial audits are most often required by a third party — a bank when seeking a loan, a government agency providing funding, or as a requirement for a grant application. As an independent audit team, we assist an organization's staff accounting team with the preparation and/or review of supporting schedules and documentation that an auditor may request to support financial statements and organizational compliance.
There are many things to consider when preparing for a financial statement audit. Make sure you are ready by first reviewing this eGuide.
Do you know how to prepare for an audit? Start with our checklist of over 35 items that your auditor will need.
Do you know how your internal control system rates? Check out the defining features of internal controls with this eGuide.
Save time and ease the stress involved around your audit by using this free eGuide to ensure that you're well prepared for the tough questions your auditor may be asking.