Get Your Financial Statement Audit Started

Get Your Financial Statement Audit Started

Learn how to prepare your company's financial statements and essential documents for an independent audit to secure financing or lines of credit.

If your company has grown and you need to secure a line of credit or seek new capital investment and financing, you are required to prepare a financial statement. A financial statement is the document that testifies to the health and growth of your company and must be audited by an independent auditor, as required by law. There are several accounting documents and procedures you must follow to prepare for a financial statement audit. Take a look:

1. The financial statement consists of your income statement at the end of the tax year. This includes your company’s gross earnings for the year and your company’s expenses, which are deducted from gross income to arrive at net income at the end of the taxable year. It also includes your capital gains and losses.
2. Next, your accounting department will need to prepare the statement of retained earnings. This should show your retained earnings from the previous taxable year, as well as the retained earnings at the end of the current taxable year. This also includes your net income, which is taken from your income statement. Included in the statement of retained earnings are the dividends paid for the taxable year.
3. The next statement to prepare is the balance sheet. This is a critical document that forms part of your financial statement, showing your assets, liabilities, and shareholder equity. Make it a practice to prepare a balance sheet every month so you can closely monitor how your business is faring. Your cash accounts shown in the general ledger should always be reconciled with your monthly bank statements. Your accounts receivable from the subsidiary ledger should also be reconciled with the general ledger to ensure everything is recorded. You should maintain an accurate record of your inventory, as this is one of the areas that receives the most scrutiny during financial audits. This should include both the year-end and beginning inventory balances. Also included in the balance sheet are your liabilities, any deferred revenue, and your company’s equity. Most financial audits focus heavily on balance sheets.
4. The final document you must prepare is the statement of cash flows. This shows the changes that occur in the cash balance ledger and outlines where the company’s cash is disbursed for operating expenses, investing, and financing. This is variable and dependent on the amount of actual cash your company uses on a monthly basis. It is crucial that everything is properly and accurately recorded based on receipts.

Have your accountant prepare the financial statement after completing a trial balance gathered from all the other prepared documents. Some auditors require a narrative explaining the contents of your financial documents and ledgers. Your accounting staff should be able to properly record all daily financial activities within your company. Maintaining clean and accurate ledgers will help you prepare a reliable financial statement that is ready for audit.