Review of Financial Statements

June 19, 2008

June 19, 2008

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There are several different tasks an accounting firm or auditor performs for a company. Typically, accounting firms or auditors review a company’s financial statements on an annual basis. If you are interested in buying a company, you should ensure that business for sale have at least some level of review on their financial statements. This will ensure that there are integrity in the financials for each company. The three types of review are as follows:

 
  • Audited – Auditors and CPAs perform significant procedures and analysis to assess your Company’s financial information. Audited financials are the most desirable from the perspective of banks and investment firms because they provide the most reliable numbers. In other words, audited financials have the most validity compared to the other types of review.
  • Reviewed – Not as rigorous procedures and analysis as compared to an audit but still helpful in identifying an weaknesses or issues in the accounting controls and procedures for your company.
  • Compilations – prepared by a CPA but without any significant procedures or analysis performed to assess the validity of the financial information of your company. Not all that helpful in our opinion.
When you are considering buying a company, you will want audited financials as these are the most detailed and rigorous in terms of analysis. Therefore, audited financials provide the most comfort in terms of validity of the numbers. If you are a smaller company and don’t typically have an audit performed each year, then you might be able to get an investment firm to share part of the cost. It depends on how competitive your process is.If you are a current business owner, it is a good idea to have reviewed financials at a minimum on an annual basis. This demonstrates good discipline and process. Further, it could help identify any issues in your company’s financials or weaknesses in your accounting controls and procedures. If you plan on raising any debt financing for your business, you will likely need audited financials.If you are considering business for sale , stay tuned for our M&A process overview. It should be helpful in gaining a general understanding of buying or selling a business.

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