Financial statement audits: A boost for businesses, and where accounting experts fit

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Financial statement audits are major events for businesses. The compliance with U.S. generally accepted accounting principles (GAAP), or lack thereof, has a substantial influence on both the perception of the company audited and variety of related financial considerations.

The high stakes related to these audits aren’t the only element that make them so important. Recent research from Deloitte, in the report “Audit Evolved,” indicates a strong majority of both executives and audit committee members believe the reports and results that come along with a completed financial statement audit offer opportunities to improve business operations. The value of this type of audit, beyond reviewing accounting practices and determining compliance, is becoming more widely recognized.

There’s a major role for Certified Public Accountants and other experts in the field to play as well. A Master of Accounting (MAc) degree can help accountants focus on this area of practice that has long been needed for publicly traded businesses and is growing in perceived importance among business leaders.

Binders of Accounting information

The value of a financial statement audit

The practical purpose of a financial statement audit is clear to anyone who understands the basic principles of accounting. Publicly traded businesses are independently reviewed and held accountable for either strong, prudent financial management or any misdeeds that may have occurred under the watch of management, large or small. These audits are one of the most important tools used by current and potential shareholders to make decisions related to purchasing or selling stock in a given company, as well as informing shareholder voting in corporate elections. They also provide deep insight for businesses in terms of improving operations through the careful and meticulous information gathered and shared by auditors.

While not required among privately held businesses, they provide similar internal insight to businesses and can offer assurance and confirmation for a variety of financial considerations involving outside entities.

PricewaterhouseCoopers said the emotions associated with the results of a financial statement audit are important in their own right. An audit with a positive result means credibility for the business, comfort for the shareholders and confidence among the much larger group of stakeholders that interact with the organization in one way or another. While these feelings aren’t as critical to operations as the factual content of an audit, their presence and influence shouldn’t be ignored.

The impact on businesses

A record of good performance in relation to financial statement audits – indicating strong oversight and compliance – means a company can be associated with a number of positive attributes. From consumers having confidence in purchasing its products to improved attitudes toward purchasing or holding onto stock and a view of the company as a trustworthy investment, there are plenty of outward-facing benefits that come along with a strong audit performance. Similarly, repeated issues or just one instance of serious wrongdoing uncovered in a financial statement audit can lead to many different negative consequences.

The benefits and drawbacks that come from public reaction to an audit are well known. The concept of internal improvements that result from audits, and the realization of subsequent advantages, is less established but quickly growing in popularity. Deloitte’s survey of 300 executives and 100 members of audit committees revealed a strong sentiment from both groups that audits are highly valuable for a variety of internal reasons. For example, 46 percent of executives surveyed said it was somewhat likely that important operational insights would be missed had an audit not occurred, with 62 percent of audit committee participants agreeing. Similarly, 85 percent of executives are pleased with the insights derived from the process, and 88 percent of committee members feel the same way.

How accounting experts can enhance their roles

With internal insights and improvements an increasingly appreciated and emphasized component of audit results, accountants and firms can capitalize on the change in perception and provide an audit that offers more value to clients. Perhaps most importantly, they can do so without changing anything about their adherence to the strong regulatory process that guides an independent audit.

A strong majority of business executives, 79 percent, and audit committee members, 94 percent, replied to the survey agreeing that more internal transparency in audit results would lead to more benefits for the company. What does that mean for auditors? Moving beyond the basic structure of the existing audit format to provide and communicate clear information and data is one potential approach to consider. This not only taps into a common sentiment among the leaders of organizations, it’s a clearly demonstrated addition of value to the current reporting format.

On a broad scale, that means auditors need to develop a strong understanding of elements beyond the technical and regulatory considerations involved in an audit. The Deloitte report noted taking the next step forward likely involves more effective communication between auditors and executive boards, as well as specific departments inside an organization. With 41 percent of business leaders agreeing audit information isn’t always presented effectively or in a useful way, there are opportunities to be seized by the many accountants that work in a variety of roles on each audit. A more personalized approach to sharing this information and doing so in a way that is easily understood by those not well-versed in the world of accounting are critical skills to develop.

Another aspect to consider is early work done with the business involved in an audit to determine what kind of data and presentation is most helpful outside of the required elements of the process. Reaching a consensus about how this additional information will be presented and which areas auditors should focus on beyond the mandatory components yields targeted, tailored results that provides more value to the business and strengthens the position of the company performing the audit.

Moving forward in your career with the University of Alabama at Birmingham’s Master of Accounting Program

Modern accounting professionals understand the possibility for change in their industry, from regulatory developments to a reimagining of the scope and benefits of financial statement audits. The UAB 100-percent online Accounting program offers active professionals the education they need to stay current on accounting trends in a format that allows them to balance their personal, work and educational lives. A 100-percent online learning environment means flexibility in managing your course work and many other responsibilities, a perfect fit for when on-campus attendance is simply impractical. With competitive ranking on the U.S. News and World Report’s Best Online Graduate Business Programs list, you know you’ll experience a fast-paced and effective learning environment.

Contact an advisor today to learn more about enrolling in UAB’s online MAc program.

Recommended Readings:
Online BS in Accounting or online BS in Finance: Which is right for me?
Interested In Accounting? Consider Pursuing These Four Management Roles

Sources:
https://www.pwc.com/gx/en/services/audit-assurance/publications/understanding-financial-audit.html
http://www.journalofaccountancy.com/news/2017/mar/business-insights-from-financial-statement-audits-201716334.html
https://www2.deloitte.com/us/en/pages/audit/articles/audit-value-survey.html
https://www.accountingtools.com/articles/what-is-a-financial-statement-audit.html