Why would an owner want to audit his business?

Answer 1

In the United States every publicly-owned company is required by law to have an annual audit. Although there is no such requirement for most privately-owned US companies, the owner of such a company may want to audit his business because:

1) He may need to get audited financial statements, as a condition for getting financing from his bank or from potential investors or partners;

2) He may want to check for compliance with laws and regulations;

3) He may want to check to see whether internal control is strong enough to help prevent fraud (though that is not the purpose of an ordinary audit);

4) He may want to see that operations are being conducted efficiently

The purpose and scope of any given audit is a matter of agreement between the CPA and the client, although there are legal minimum required standards.

There are different kinds of audits - for example, audits of the firm's financial statement, and audits of the firm's operations. Generally, when people use the word "audit," they mean an audit of a company's financial statements.

Such an audit is performed by an outside CPA who is independent from the owners of the company, and thus is not influenced in any way in reaching her conclusions about the financial position of the company she is auditing. A company's ability to produce audited financial statements gives the readers of those statements a very high level of assurance about whether the financial statements fairly present the company's financial position.

However, full financial statement audits are extremely expensive, and there are other, more limited procedures, such as reviews, that owners will opt for if they are not required to have full audits. For most small businesses, full audits are overkill. Any benefit derived by the owner is overridden by the sheer cost of the audit services.