How to Decide Whether Your Business Needs an Audit
Audits provide the opportunity for a second set of eyes (usually those of a certified professional accountant) looking over your business’s accounts. An annual audit of your business may be a requirement of your business's investors and lenders as a condition of putting their money in the business.
CPA auditors provide a couple of useful services for your business:
Checking up: In a sense, CPA auditors give your business a yearly physical exam. The audit exam may uncover problems that your business wasn't aware of, and knowing that the auditors come in once a year to take a close look at things keeps your business on its toes.
Reporting: After completing an audit examination, the CPA prepares a short report stating whether the business has prepared its financial report according to the appropriate U.S. or international accounting and reporting standards.
The audit requirements are different, depending on whether your business is public or private:
Public: Businesses whose ownership and debt securities (stock shares and bonds) are traded in public markets in the United States are required to have annual audits by an independent CPA firm. (The federal securities laws of 1933 and 1934 require audits.)
Private: Although federal law doesn’t require audits for private businesses, banks and other lenders to private businesses may insist on audited financial statements.
Of course, audits aren’t cheap. It’s hard to do an audit of even a small business in less than 100 hours. At $100 per hour (which is probably too low an estimate), the audit fee would be $10,000. Instead of a full-fledged audit, which they can’t realistically afford, many smaller businesses have a CPA come in regularly to look over their accounting methods and give advice on their financial reporting.