When do you need your company’s financials audited? If you have a PPP loan over $2 Million. When a buyer suddenly increases interest in purchasing your company. When an investment firm offers to take your company public. There are many reasons. Audits happen when there is a growing need to understand and control risk.
CPA firms have professionals that are certified to provide these services. The CPA license means they will adhere to GAAP (Generally Accepted Accounting Principles) and rules from the FASB or Federal Accounting Standards Board.
There is the case of a company purchased two years ago. They had 30 years of profit and growth and a great reputation in their industry. But their books were a mess. The buyer could not perform adequate due diligence based on the financial records. The numbers were not reconciled and supporting schedules did not tie-in. There were competing buyers ready and anxious to acquire the company. Instead there was a strong focus on verifying other factors like the owner’s personal reputation, the capabilities and the quality of the people on the team, attitudes of the plant workers, what their Tax CPA and what their banker and their suppliers had to say about the company.
So the deal was made and a year later the new owner decides to start the formal annual audit process because if they grow it successfully, after 5 to 7 years go by they could sell the company at a substantial profit. A very capable CPA firm was brought in to dig into the details – bank statements, invoices, purchase orders, paycheck records, and hand-written ledgers.
But the audit was called off halfway through the process. There was insufficient information available. This was a bad situation. The result was time and money wasted, and the formal annual audit process was delayed for a year or two. No great loss, except an eventual sale of the company would probably happen at a lower price because of a shorter record of complete financials. Perhaps a few million dollars less?
Imperial Cost Control has a Pre-Audit service offering that is very high value. We get the call when there may be a “conflict of interest.” CPA’s are not supposed to audit their own work. Clean up and catch-up means piecing together records so they are certifiable by an audit. If the same firm cleans up and catches up and then audits the work, it is not an independent audit. These are not best practices and a due-diligence years later will show this.
Also, often a CPA firm realizes there is too much detail work to do in preparation for their CPA’s to take over and do the audit. This preparation involves an ocean of details and they would have to charge their client for so many hours that it would sour the relationship from the start.
Imperial Cost Control’s prices are very reasonable. And when we are finished, we leave. This becomes a true win-win situation for the CPA firm and their new audit client. A good start to a new relationship – and that is what keeps their client coming back every year.
