Why Audited and Reviewed Financial Statements Matter

As businesses grow, financial statements become increasingly important to lenders, investors, business partners, and ownership groups. While internally prepared financial statements can provide useful management information, third parties often seek additional confidence that the financial information is reliable. This is where audits and reviews play an important role.

Key takeaways

• Audits and reviews increase the credibility of financial statements.
• Lenders and investors often require assurance services before making decisions.
• Audits provide a higher level of assurance than reviews.
• Reliable financial reporting can improve access to financing and growth opportunities.

Understanding assurance services

An audit is the highest level of financial statement assurance provided by an independent CPA. During an audit, the CPA performs detailed procedures, testing, and evaluation of financial information before issuing an opinion on whether the financial statements are fairly presented. A review provides a lower level of assurance and relies primarily on analytical procedures and management inquiries rather than extensive testing. [1]​[2]

Although the scope differs, both services can strengthen confidence in a company's financial reporting.

Why assurance matters

Reliable financial statements help stakeholders make informed decisions. Banks frequently require audited or reviewed financial statements when evaluating loan requests. Investors and potential buyers often use assurance reports to assess financial performance and identify risks before committing capital. [2]​[1]

For business owners, the process can also uncover weaknesses in accounting procedures, reporting processes, or internal controls that may otherwise go unnoticed.

Practical example

Assume a manufacturing company is seeking a new line of credit to support growth. The lender requests reviewed financial statements before approving financing. By engaging a CPA to perform the review, management provides greater confidence in the accuracy of its financial reporting and improves its ability to secure funding.

Records and information to review

• Financial statements
• General ledger reports
• Bank reconciliations
• Loan agreements
• Internal control documentation
• Prior assurance reports

When to discuss with your CPA

Consider discussing audit or review services when:

• Applying for financing.
• Seeking outside investors.
• Preparing for a business sale.
• Meeting ownership or shareholder reporting requirements.
• Expanding operations or entering new markets.

The appropriate level of assurance depends on your company's size, stakeholders, financing needs, and reporting objectives. A CPA can help determine whether an audit or review best fits your circumstances.