When a business that is privately owned brings on board the assets for the business owner or other investors, the latter are considered as shareholders. Companies that are privately held and have been formed as C-Corporations have an allowance to have an unlimited number of shareholders, and this makes it ideal for larger private companies. C-corporation companies are not subjected to the regulations of the Securities and Exchange Commission. Also, unlike public companies, the private corporations may not require a mandatory independent financial audit although banks and other entities may require audited statements for purposes of industry regulation compliance and debt covenant.
What you should know about financial audits for private companies.
An audit for a privately held company is done by a third party, and it solely focuses on evaluating the credibility and accuracy of financial statements for the company. The auditors are to ascertain if the accounting processes executed adhere to corporate procedures and policies. Also, the auditors determine whether the financial statements of the private company follow the acceptable standard principles of accounting. Once the exercise is complete, it is mandatory for a written report to be issued by the audit firm to the company. The written audit report should give an opinion concerning the dependability and fairness of the financial statements of the company. The audit process for a private company differs in type and scope to that of public companies. The audit process for public companies is more complex than for C-corporations due to the regulations of the Securities and Exchange Commission.
Planning for an audit for private companies
The auditing process follows a standard procedure guided by a plan laid out by the International Auditing and Assurance Standards Board. The process follows the following three key steps:
The first step of the process requires the auditors to familiarise themselves with the systems of internal control, the operating environment, and the business in general.
In the second step, the audit firm uses the data gathered to evaluate the possibility that the financial statements of the company contain misstatements and significant errors.
In the final stage of the process, the audit firm comes up with ways to tackle the internal control risks found during the planning stage.
Implementing the external audit plan
This section is the action phase of the audit process for private companies, and it targets to implement the audit plan. Some of the activities involved in the execution of an external audit plan include the following: random samples of accounting records and financial statements are inspected, creating an audit blueprint by tracing transactions from sender and receiver, comparison of the financial information gathered from the company and the financial statements that already exist.
Furthermore, the standard corporate procedures are also reviewed by the auditors, and this can be achieved through interviews of various institutions in the company.
Presentation of the audit results
The final report of this exercise should contain three primary sections. The first paragraph entails general information including the process followed … Read More