More than just paperwork, audited financial reports show that the numbers for your business add up. Knowing what goes into an audited statement and why it matters can help you gain confidence with investors, lenders, and other key decision-makers, whether
you operate a startup or oversee a developing company.
In this guide, we’ll walk through what audited financial statements are, what they include, who prepares them, and all the essential details you need to know to build and sustain a successful business.
What Are Audited Financial Statements?
A certified public accountant (CPA) reviews an audited financial statement to verify a company’s financial data, thereby certifying its accuracy and error-free status. Companies often bring in an external auditor to double-check their financials and strengthen
their credibility.
Investors and other key stakeholders usually ask for these audited statements to get a clear, trustworthy view of the company’s financial health, including its profits, expenses, and overall performance.
What Should You Include in an Audited Financial Statement?
A proper financial audit doesn’t just look at numbers on a page. It digs into how those numbers got there. When preparing for an audit, here’s what’s typically involved:
On-site inventory inspection
CPAs don’t just review documents when auditing financial statements; they may also conduct an on-site inventory inspection. This helps them verify that stock counts match what’s available on the financial statement and allows them to catch any calculation
or recording errors.
Internal review of financial roles
In larger companies, several staff members could prepare financial records. A CPA audit might help find mistakes in the data recording, especially if ongoing errors go back to certain procedures or team members repeatedly.
CPA verification of financial records
Internal finance teams usually handle the day-to-day tracking of cash flow, assets, and liabilities. However, during an audit, the CPA double-checks those records to guarantee that they are accurate. This is especially important when presenting your financials
to external stakeholders who rely on verified data.
Who Prepares Audited Financial Statements?
Companies usually put together their financial statements and hand them over to certified public accountants (CPAs) for a detailed review. The CPA then reviews the papers, verifies all the specifics, and signs them when all seems correct, hence producing
official, audited financial statements.
Most businesses do this for a few key reasons. First, it helps verify that their own perspective of the financial situation of the business is correct. Second, they frequently require these audited statements to demonstrate to prospective investors, lenders,
or other stakeholders that the figures are strong.
And if the company involves public trading, it’s not optional; federal regulatory bodies require audited financials to keep shareholders in the loop about how the business is performing.
The Four Key Types of Audited Financial Statements
When a CPA audits your financials, they typically look at four core documents:
Cash flow statement
This statement tracks how cash comes in and goes out of your business. It shows investors whether you’re generating enough cash to cover day-to-day operations, pay suppliers, and invest in growth. During the audit, CPAs verify footnotes, cross-check entries
with bank statements, and make sure the reported inflows and outflows reflect reality.
Income statement
Also called the P&L (profit and loss) statement, this document summarizes your company’s income and expenses over a specific period. It highlights whether your business made a profit or took a loss. For public companies, it also includes earnings per share
(EPS). A CPA will review supporting documentation, such as your general ledger and journals, to confirm the figures.
Balance sheet
A balance sheet shows where a company stands financially at a specific point in time, usually at the end of a quarter or year. It lists the company’s assets and liabilities, organized by how quickly
the company can turn an asset into cash (that’s what we mean by liquidity).
When auditing the balance sheet, a CPA ensures that the company accurately reports all its financial information. They make sure the assets and liabilities are listed correctly and that there are no errors in the document. This is a key step in confirming
that the company’s financial position is correct.
Statement of shareholder equity
Companies report shareholders’ equity on the balance sheet, but the detailed statement of changes in equity is usually presented as a separate report. This statement enables shareholders to track the change in their equity over a specific period, indicating
whether it has increased or decreased.
When equity increases, shareholders usually see that as a positive sign. But if it drops, they might rethink their investment and consider selling their shares. It’s a useful snapshot of how the company is managing value for its owners.
How Do Audited Statements Differ from Other Reports?
Audited financial statements stand apart from other types of accounting reports, like reviewed or compiled reports. When a CPA audits financial statements, they go through every detail to make sure the numbers are accurate. They run procedural tests to ensure
that the way money moves through the business matches what is reported.
On the other hand, compiled reports are much simpler. An entry-level accountant — someone who isn’t a CPA — can put these together by pulling data from internal records. But there’s no review or validation involved, so they don’t carry the same level of
trust.
Reviewed reports are neither compiled nor audited reports. A CPA performs some analytical checks and makes sure the company follows generally accepted accounting principles (GAAP), but they don’t do any protocol testing. So, while reviewed reports are more
reliable than compiled ones, they’re still not as thorough as a full audit.
Audited vs. Unaudited Financial Statements
Audited and unaudited financial statements serve different purposes, and there are a few key differences between them:
- Cost: Audited financial statements tend to cost more because they require a licensed CPA to do a full review. These audits are often mandatory for publicly traded companies or when investors ask for formal verification. Unaudited statements
are cheaper since they don’t go through that level of scrutiny.
- Time: Audits take more time. CPAs follow strict review processes and run procedural tests to make sure everything adds up. In contrast, unaudited reports come together faster because an accountant just compiles the data from internal records
without any deep analysis.
- Accuracy and validation: If a company needs funding or wants to share reliable information with shareholders, it usually turns to audited statements. A CPA signs off on these reports so the numbers have been checked and verified. Unaudited
statements, on the other hand, might contain mistakes or unverified details.
- Expertise: A person with basic accounting knowledge can prepare an unaudited financial statement. However, it requires a CPA with the right training and certification to complete an audit. That added expertise helps ensure the final report
is accurate and trustworthy.
A Holistic Approach to Financial Accuracy
Companies trying to have transparency and confidence must first get audited financial statements. Verified by a certified public accountant (CPA), these documents offer an exact picture of a company’s financial situation.
By ensuring the accuracy of assets, liabilities, and cash flow, businesses can create trust with stakeholders and secure funding opportunities. Whether required by regulators or used for internal assurance, they serve as an essential tool for making informed
decisions and maintaining financial integrity in any organization.
