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Audited, Independently Reviewed and Compiled financial statements – What does your business require?

If you’re preparing for your annual audit, you may have been informed that your business will need to submit audited annual financial statements. Understanding what these documents are will give you important insights into the taxation and compliance process.

Let’s take a look at the three main financials, the balance sheet, income statement, and cash flow statement, and find out why it’s so crucial for these documents to be 100% accurate.

The balance sheet

Every business has assets that it owns, liabilities that it owes, and accumulated profits that increase the shareholders’ equity. You’ll find all of these items on the balance sheet.

  • A balance sheet lists all of the financial holdings and the debts in your company’s name and gives a quick snapshot of the business’s overall net asset value.
  • This important financial document is one of the essential statements that is prepared on a regular basis.
  • Professional financial statement compilation helps to eliminate accounting errors, giving investors, shareholders and the tax authorities greater confidence in the figures that are presented to them. It’s important to note however, that unlike a review or an audit, a compilation of financial statements provides no assurance.

The income statement

Taking a look at your company over a period of time, you’ll see that your business receives a certain amount of income and pays out other amounts in the form of drawings, director’s salary, and other business related expenditure.

  • An income statement shows the revenue and expenses that flowed in and out of your business over a period of time, typically twelve months.
  • Unlike the balance sheet which shows the state of your company’s assets and liabilities on a given day, the income statement shows the change in revenue and expenses over time. This shows the company’s net loss or profit for a given period.
  • A comprehensive audit helps to verify the amounts on the income statement with the aim of accuracy.

The cash flow statement

Some of the income and expenses shown on the income statement may be received or recorded before the money actually flows in and out of your business.

  • The cash flow statement tracks these amounts and shows exactly how much cash was received and paid by your business over a given time.
  • This financial document is extremely important because it indicates how much actual money was received by the business through sales, loans, and other deposits, and how much money was paid out in cash. The cash flow statement helps to verify the information presented in the income statement and balance sheet – and for this reason it needs to be verified very carefully.

These three financial statements form the basis of proper accounting and may need to be audited to comply with reporting standards depending on the size of your company and other factors.

Compilation, Audit or Review

It’s important to ensure that you are performing the right financial assessment method for your business. A compilation is a basic summary of your company’s financial statements, as opposed to an audit which is a far more systematic process with a thorough examination of the annual financial statements and underlying financial records. A financial review provides an evaluation of your company’s books and an independent analysis of the financial records with limited assurance. A review is also an easy transitioning step into an audit.

Meticulous and accurate auditing is essential for every business that requires one. To learn more about our audit and assurance offering, contact West Evans today.

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