Reasons for an Audit
There are many reasons why a business would be required to undergo an audit of the company financial records.
These reasons can generally be placed into one of two categories. Internal and external. Internal means that upper management or ownership has made the determination for a need for and audit. External is usually a lender or a governing agency the business works with.
Some of the most notable reasons are listed below:
- Management requires an audit of the financial statements; generally required when management wants to show transparency regarding the operations of the business. This often happens in times of transition in the business.
- Investors or creditors require an audit. Generally this occurs when a bank of other lender requires an audit of the financial statements as part of a lending agreement.
- An audit will likely be required if the business is preparing for sale or public offering.
- Government contracts often require the recipient of government funding to have their financial statements audited.
- Government entities require an audit for certain industries for licensing to operate in a state.
- Certain states require an audit of non-profit organizations licensed in their state that provide a certain level of public support.
- Ownership may require an audit if the owners are not active participants in management, or if there are multiple owners and some are not active in operations.