The Benefits of an Audit for Manufacturing and Distribution Companies
It can be tempting to do as little as possible to meet the reporting requirements set by lenders, regulators and investors. For example, if audited financial statements are not required by a third party, owners of manufacturing and distribution companies may forego the expense and opt for a compilation or review of their financial statements instead.
However, many owners choose to have an audit performed anyway. Even if it's not required, an audit gives these owners peace of mind and offers benefits. An audit provides assurance that the company's financial information is accurate and that the staff is following internal controls and reporting standards.
In fact, there are many reasons why an audit can be beneficial:
Accounting oversight
An audit requires the internal accounting team to keep its act together. Knowing their work will be highly scrutinized, the accounting department is much more likely to record entries carefully, follow internal controls and justify how they're doing their jobs. This increased level of accountability has a positive impact on the entire operation.
Better business practices
The nature of an audit requires that the auditors learn a lot about the business. It's just part of the job. They see the best and worst in how various manufacturing and distribution companies are managed, and can offer informed, neutral input on the big picture at your company.
Risk management
Good auditors often uncover errors and holes. Because they are interviewing your staff and digging into your books, they can see problems (or potential problems) that management should be aware of — ranging from straightforward mistakes to outright fraud.
Internal control analysis
As part of a standard audit, the CPA studies, analyzes and tests the company's internal controls. He or she also gives management an assessment of the adequacy and effectiveness of internal controls, which can go a long way toward preventing fraud, errors or omissions.
Tax synergies
Because of the in-depth analysis involved, it's not unusual for auditors to discover areas of tax risk or questionable deductions. Often, they can also identify places where tax savings might be possible.
Preparation for transition
Audited financial statements give buyers, lenders and investors a much stronger sense that the company is following best practices and is serious about running a tight business. However, it's important to have reliable, audited financial data even if there are no current plans to sell the company or transition to new management.
Obviously, an audit is more expensive than a compilation or review. But what is discovered in an audit in terms of better business practices, risk management or fraud can be invaluable to a business.
We provide comprehensive audit and accounting services to manufacturing and distribution companies. To learn more, call Randy Patterson, CPA, CVA, Manufacturing and Distribution Partner, today at 501-374-2910.
What's the Difference Among Alternatives?
Compilation
Compiled financial statements represent the most basic level of service. The CPA assists management in presenting financial information in the form of financial statements, but provides no assurance about the statements' accuracy or material errors.
Review
The CPA performs procedures and inquiries to provide a reasonable basis to believe that there are no material modifications that should be made to the financial statements. This is limited assurance, and does not include a CPA's opinion.
Audit
Audited financial statements are presented fairly and in conformity with applicable frameworks. The auditor obtains a high level of assurance that the statements are free of material misstatement.
