All About Audited Financial Statements (2024)

When you apply for business funding, lenders and investors want to be sure they won’t lose money on the opportunities you present. That’s why you need to bring detailed financial statements to your pitch meeting. If, however, the people you’re presenting to still feel uncertain about your company’s finances, that might be because you haven’t prepared an audited financial statement. Read on to learn what an audited financial statement is and how it differs from an unaudited financial statement.

What is an audited financial statement?

An audited financial statement is any financial statement that a certified public accountant (CPA) has audited. When a CPA audits a financial statement, they will ensure the statement adheres to general accounting principles and auditing standards. Without this CPA verification, investors and lenders may not be confident the statement you’re presenting is accurate.

Types of audited financial statements

There are four primary types of financial statements that may merit auditing.

  1. Balance sheet: A balance sheet details your business’s total assets, shareholder equity and debts at a given point in time. It’s often thought of as a snapshot of your company’s financial performance. [Read related article: 4 Ways to Boost Your Balance Sheet]
  2. Cash flow statement: A cash flow statement details the amounts of cash and cash equivalents that move in and out of your company’s bank accounts. Cash equivalents include overdrafts, bank deposits, cash-convertible assets and short-term investments. For this type of statement, cash includes both cash available on hand and money stored in demand deposits.
  3. Income statement: An income statement, also known as a profit and loss statement, details your company’s revenue after all expenses and losses. Whereas a balance sheet is a snapshot of your company’s performance at that moment in time, an income statement captures that performance over an extended period. It usually includes metrics such as gross profits, net earnings, revenue, expenses, cost of goods sold, taxes and pretax earnings.
  4. Statement of shareholder equity: While often included as a portion of the balance sheet, the statement of shareholder equity can be prepared separately as well. It details all changes to your company’s value to shareholders during an accounting period. Increasing equity indicates good business practices, while decreasing equity may indicate the opposite.


What are the stages of an audited financial statement?

A CPA auditing a financial statement usually moves through the following three stages.

  1. Industry research and risk assessment. To do a proper audit, the CPA should learn about not just your business but its industry and competitors. With this knowledge, they may be able to better identify risks that could affect your financial statement’s accuracy.
  2. Internal control testing. Your CPA will test your company’s internal controls to understand your organization’s processes for employee authorizations, delegation of responsibilities and asset protection. After identifying these workflows, the CPA will conduct control procedures to verify their fortitude. A strong set of procedures may merit more complex auditing, while a weak set of procedures may require extra financial assessments.
  3. Thorough statement verification. Following the first two stages, your CPA will verify each and every item on the financial statement. For example, if the CPA is verifying your accounts payable, they may reach out to companies with whom you have uncompleted invoices to verify the amount you owe. After this stage, your CPA will be ready to offer an opinion letter, which we’ll discuss more below.

What is included in an audited financial statement?

An audited financial statement includes the following information.

  • CPA verification. Even if you meticulously track all your company’s spending and earnings, you might make errors. When you hire a CPA to audit your financial statements, you minimize these errors and move your statement closer to complete accuracy.
  • On-site inspection. For an audited financial statement, a CPA will go over your financials with a fine-tooth comb, but sometimes, that’s not all. If parts of your financial statements include reports on your inventory, your CPA may also personally inspect your inventory to ensure no gaps in stock counts.
  • Internal control inspection. If your team includes employees who monitor your company’s spending — especially if these employees have little to no supervision or double-checking from other staff members — your CPA may inspect their work. That’s because, with so little everyday oversight, there’s always a chance (though maybe a tiny one) that these employees could be fudging your books or otherwise committing fraud.

Did You Know?

Having a CPA conduct an audit on your organization is just one way to catch or prevent employee accounting fraud.

Opinion letter

To summarize the above information, your CPA will provide an opinion letter detailing their perspective on your financial statements. There are four types of CPA financial statement opinions.

  • Unmodified opinion: Also known as an “unqualified opinion,” this opinion from a CPA means you prepared your financial statements accurately using standard, acceptable bookkeeping and accounting practices.
  • Qualified opinion: If you receive this opinion, your CPA thinks your financial statement preparation, accounting and/or bookkeeping have a small number of gaps. Your CPA will detail these problems and how you can fix them. Once you rectify your errors, you can seek an unmodified opinion.
  • Adverse opinion: This opinion signifies your financial statements are inaccurate, with more than just a small, relatively insignificant number of gaps. It means investors, lenders and other funders should not trust the information in your financial statements. Here, too, your CPA will explain the best route for fixing the issues and allow you to return for an unmodified opinion.
  • Disclaimer of opinion: This result is not an opinion but a lack of one. It signifies that you haven’t given your CPA the access, information or time needed for a complete audit.

If you expect to receive funding from top-rated business loan and financial services, you will want to obtain an unmodified opinion from your CPA before you apply for financing.

Who should prepare audited financial statements?

Any business that presents its financials to investors or lenders should prepare audited financial statements. The vast majority of potential funders for your company will request audited financial statements instead of unaudited ones, since the latter leaves far more room for error.

Additionally, if your company is publicly traded, you’ll need to prepare annual audited financial statements. While federal regulatory bodies mandate that publicly traded companies file audited statements, you can regularly create unaudited ones throughout the year if they help you assess your finances.

What is the difference between audited and unaudited financial statements?

When you compare audited and unaudited financial statements, you’ll notice the following key differences.

  • Creation: Any accountant can create an unaudited financial statement. Only a CPA can create an audited financial statement.
  • Trust: When you present an unaudited financial statement, the person reviewing your statement cannot entirely trust that it is accurate. An audited financial statement is, by definition, thoroughly and professionally reviewed, eliminating any doubts about its accuracy.
  • Time: An unaudited financial statement is fairly quick and simple to generate. Your accountant simply compiles all your financial information into one document. An audited financial statement, on the other hand, will likely take weeks or even months to complete.
  • Cost: Unaudited financial statements cost less money to generate than audited financial statements. That’s because whether your in-house accounting team prepares them or you hire a third-party accountant, you won’t pay as much as you would to go through a CPA.
  • Legitimacy: When applying for additional business funding, you’ll likely need to present audited financial statements. Since unaudited financial statements don’t include a guarantee of accuracy, lenders and investors often do not consider them legitimate.

From these differences, you can see that the fundamental characteristic of audited financial statements is the involvement of CPAs. To learn more about how CPAs differ from traditional accountants and determine how you can hire either for your company, read our article: How to Hire the Right Accountant for Your Business.

How does an audited report differ from other types of accounting reports?

When you think of the word “audit,” the IRS might be the first thing to come to mind. That’s because audits are often associated with the IRS investigating taxpayers for possible tax-filing inaccuracies. You might think of audits as a punishment, but they’re not — they can actually be beneficial, if not paramount, for your financial statements. To understand why, compare an audited report to two other types of accounting reports.

  • Compiled reports: Any accountant can prepare a compiled report, which is nothing more than a basic financial statement. It’s called a “compiled report” because your accountant generates it by compiling your financial records into a widely accepted financial statement format. However, in compiling this report, your accountant does not check whether the information you’ve given them is accurate and will say so in the report. In other words, the information is unaudited.
  • Reviewed reports: A reviewed report undergoes slightly more scrutiny than a compiled report. For these reports, your accountant will employ limited analytical procedures and submit a small number of inquiries to your company’s management. Through this work, your accountant will determine whether your financial statements require substantial modifications. Your accountant will also verify that your company uses generally accepted accounting principles (GAAP), but they will not test your protocols.

In contrast to compiled and reviewed reports, an audited report involves a thorough review of each and every item on a financial statement. It also entails internal protocol testing to ensure money moves about your company in a way that your reports accurately reflect. An audit is proof your financial statements are fully accurate.

Skye Schooley contributed to this article.

All About Audited Financial Statements (2024)


All About Audited Financial Statements? ›

An audited financial statement is any financial statement that a certified public accountant (CPA) has audited. When a CPA audits a financial statement, they will ensure the statement adheres to general accounting principles and auditing standards.

What do audited financial statements include? ›

It reveals the value of assets, liabilities, and equity of a company. The items in the assets and liabilities columns are typically presented in order of liquidity, with the most liquid items reported first. The auditor may verify the existence of assets and liabilities, and the accuracy of the figures presented.

What is the basic purpose of audited financial statements? ›

The primary object of a financial statement audit is to provide assurance that financial statements fairly present the financial position of a company. This assurance is very meaningful for external parties that rely on the financial statements, such as investors, lenders, suppliers and even some customers.

What are the 4 audited financial statements? ›

Financial statements are often audited by government agencies and accountants to ensure accuracy and for tax, financing, or investing purposes. For-profit primary financial statements include the balance sheet, income statement, statement of cash flow, and statement of changes in equity.

What is the requirement for audited financials? ›

Audit of Financial Statements

Once the financial statements are ready, your company may be required to have its financial statements audited if the company meets any 2 of the following 3 conditions: Total annual revenue exceeding S$10 million; Total assets exceeding S$10 million; or. Has more than 50 employees.

Who is required to submit audited FS? ›

Unless exempt, corporations, partnerships, or individuals with gross annual sales of more than PHP3 million are required to submit an AFS to the BIR each year. The AFS will be filed as an attachment to the company's annual income tax return, or AITR.

What to look for when reviewing audited financial statements? ›

- Were any known errors not recorded and why? How did management assess materiality and control implications? - Have all significant subsequent events been properly reflected and / or disclosed in the financial statements? - Are there any special purpose entities that require consolidation by the company?

What is a financial audit checklist? ›

A financial audit checklist is a document that contains list of tasks that must be completed during the financial auditing process, which is typically conducted once a year. A financial audit checklist helps you: Examine your company's income and expenses.

Why do we insist on audited financial statements? ›

Reduce your risk of fraud.

Independent financial audits can uncover red flags that fraud may be occurring and that additional investigation is warranted.

How much do audited financial statements cost? ›

The cost of a financial statement review generally ranges from $1,500 to $5,000. Many CPAs will include the review at the time your taxes are prepared and roll the cost together.

What does an audited P&L look like? ›

An audited profit and loss statement shows a summary of the revenue, expenses and total income or losses of a company for a certain period as reviewed by an independent certified public accountant.

Who prepares an audited financial statement? ›

Oftentimes, the certified public accountant (CPA) who performs your general accounting and/or bookkeeping and prepares your annual tax return can also prepare your financial statements and, in addition, perform the appropriate service in order to meet your bank's requirements.

What is the difference between audited financial statement and balance sheet? ›

Historical Information: A balance sheet reflects a company's financial position at a specific point in time, while a financial statement provides historical information about a company's financial performance over a period of time.

Who is responsible for audited financial statements? ›

The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.

Can anyone do a financial audit? ›

While financial audits can be conducted internally (by an employee), most of the time, your stakeholders will want an audit from an independent body. As such, you'll probably need to reach out to a Certified Public Accountant (CPA) firm to conduct your audit.

What is the difference between audited and certified financial statements? ›

Key Takeaways. A certified financial statement has been audited for accuracy by an independent accountant. A compiled statement may provide investors with useful information but it has not been audited. The quarterly and annual reports issued by public companies are certified financial statements.

What is included in a financial audit? ›

During the audit, we: examine evidence supporting the amounts and disclosures in the financial statements; ◆ assess the reasonableness and appropriateness of accounting policies used and estimates made; and ◆ evaluate the overall financial statement presentation.

What are the main content of an audited report? ›

The basic elements of an audit report are the title of the report; the addressee; the auditor's opinion on the financials; the basis for the audit opinion; and the auditor's signature, tenure as the company's auditor, location, and date.

What is the composition of audited financial statements? ›

The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.

What do audited accounts show? ›

What is an audited account? When the financial results which a company compiles have been checked by an accountant qualified to conduct an audit, known as an auditor, they are known as audited accounts. If all is well, the auditor will state that the accounts give a "true and fair" picture of the company's affairs.


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