Are you looking for guidance on how to build audit-ready financials? Whether you are a pre-IPO company looking for SOX compliance, or a business needing accurate financials for lenders and investors, preparing for an audit can be overwhelming. In this blog post, we’ll provide a step-by-step guide for building audit-ready financials. We’ll go through the process of documenting and signing off every line in the income statement and balance sheet, as well as provide tips for protecting your company against a potential IRS audit. With our guidance, you’ll be prepared to create strong and reliable financial statements.
The Importance of Accurate Financials
Accurate financials are an essential part of running a successful business. Without reliable and accurate information, it is impossible to make sound decisions and ensure the longevity of a company. It is equally important to be prepared for any potential audits that may come your way, including those from the IRS.
Whether you’re a small business owner, an entrepreneur looking to expand, or a pre-IPO company seeking SOX compliance, having audit-ready financials is key. Accurate financials are necessary for lenders, investors, and tax authorities alike.
Building audit-ready financials can be a daunting task but it is necessary to ensure the accuracy and legality of a company’s operations. By following a few simple steps, businesses can quickly become audit-ready and protect themselves from any unexpected surprises.
It is essential that all transactions are documented and signed off to build audit-ready financials. This means that for every line item in the business’s general ledger, there should be a record of every transaction and its supporting documents. It is equally important to save all of the supporting documents that were used to complete the transaction. These documents can range from invoices to receipts to contracts. Business owners should utilize accounting automation software, such as Docyt, that will auto-match uploaded documents to the respective banking transaction. While it is good to add documentation for all transactions, there could be exceptions where you might not require a receipt. Docyt’s AutoPilot let’s you configure settings like ‘No document needed’ for employee expenses under an amount threshold.
Having a comprehensive record of each transaction makes it easier for auditors and investors to review the financials. This also helps in the event of an IRS audit as the documentation can be used to prove the legitimacy of each transaction. By taking the time to document each transaction, you are well on your way to building audit-ready financials.
Signing-Off On All Accounts
The key to creating audit-ready financials is to ensure that each line of the balance sheet and income statement is adjusted, verified, and signed off on by the appropriate personnel.
When verifying the accuracy of your balance sheet and income statement, there are five things you should look for in addition to reconciling your bank and credit card accounts monthly:
- Accounts Receivable: Make sure all outstanding accounts receivable (A/R) are properly accounted for. This includes ensuring that all open invoices are valid, as well as applying any credits or payments made towards A/R.
- Inventory: Verify that all inventory balances are correct, including products that have been sold or returned.
- Fixed Assets: Make sure all fixed assets are properly valued and accounted for in the balance sheet. This includes checking that all depreciation schedules are up-to-date and correctly reflecting the asset’s current value.
- Liabilities: Ensure all liabilities are properly reported in the balance sheet and that all payments have been made on time.
- Revenue & Expenses: Verify that all revenues and expenses are properly recorded in the income statement. This includes making sure that any discounts or refunds have been applied correctly.
Protecting Your Business Against Potential IRS Audits
First and foremost, have a thorough understanding of tax laws and regulations that apply to your business. Make sure that you’re compliant with all of the necessary regulations and requirements to avoid any issues during an audit. Docyt, an accounting and bookkeeping software system allows you to automate some of your tasks. This can help you keep better track of your finances and make it easier to prepare your taxes. Finally, if you are facing an audit, work with a knowledgeable accountant or attorney to ensure that you’re taking the appropriate steps throughout the process.
Financial Statement Audits
Audited financials are a must-have for any business that is looking to go public, become compliant with the Sarbanes-Oxley Act (SOX), or secure loans or investments. Before you begin the audit process, it’s important to have all the necessary documents ready. When you have all your documents prepared, the auditor will then go through them line by line to ensure that all entries are accurate and properly documented. Taking care of these details now can save you time and money in the long run. This will also give you peace of mind and enable your business to move forward confidently.
If you’d like to sign up for the automation software that makes this process easier on you, visit the Docyt website to schedule a free consultation today.