Do Reviewed or Audited Financial Statements Add Value?

Becky Gibbs

Do reviewed or audited financial statements add value?  Many privately held companies have their financial statements compiled, reviewed or audited due to requirements from a governmental agency, lender, or a bonding company, but what other advantages can these services provide to a company besides meeting a requirement?  There are several reasons for a company to have an outside Certified Public Accountant perform a review or audit even if they are not required to, all of which can add value to the business. Future sale of the business and improved business practices are a couple of the reasons a company should consider having an audit or review.

One reason for audited or reviewed financial statements that often gets over looked is if the owner is looking to sell in the next 5 to 10 years.  While audited or reviewed financial statements are not always required by a buyer, the value audited or reviewed financials provide to the seller are significant.  During the process of completing a sale of a company, the purchaser usually has a process of due diligence done on the company.  The process of due diligence, among other things, involves verifying the earnings of the company and an audit provides assurance that the financials (earnings) are not materially misstated.  When the financial statements are not audited or reviewed, the buyer may find a number of negative adjustments to earnings, thus decreasing the purchase price of the company.  An audit or a review can help prevent these negative adjustments beforehand and help you have a better idea of the value of the company.

Even if a company is not looking to sell, an audit or review can help improve the business.  As an accountant is reviewing or auditing the financial statements, they are able to view the business as a third party.  Being an objective third party allows them to see how various areas of the business relate to each other and gives them a chance to provide the owners or shareholders with ideas that can improve the business. This could be in areas where segregation of duties can be implemented to reduce risk or identifying cost inefficiencies that are lowering profit margins.  Also, the accountant can help develop key financial metric reporting to track the progress and growth of the company and succession planning.

Overall, there is more to an audit or review than just meeting a requirement.  These services are an investment in the company that can improve the business and lead to greater earnings in the long run.


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