What is the difference between a financial report and a financial audit?

Proper financial growth is one of the main things that every business tries to achieve. It is very important for businesses to have a proper grip on their finances to know where their expenses and revenue sources are coming from.

Through accounting businesses, keep track of the monetary transactions. Financial reports and financial audit forms an important part of the financial management of the business organization.

They reflect the financial aspects of the business organization. Now, if you are not from an accounting background you may get confused with both these terms.

Although some might consider both to be the same, however, there is some difference between them. If your business is operating in the USA then you need to comply with Public Company Accounting Oversight Board (PCAOB) and Securities and Exchange Commission (SEC) standards.

What is the basic difference between financial reports and financial audit?

Financial reports

They are basically a proper record of the financial activities of the organization. It shows the areas where the cash outflow is happening and cash inflow is happening. These types of reports are generally prepared annually and it may be prepared quarterly or monthly too.

Some important aspects of the financial reports are:

  • Balance Sheet

It shows a view of the company’s liabilities, assets, and shareholders’ equity in a proper pattern.

  • Income Statement (Profit and Loss Statement)

Presents the company’s revenue, expenses, and net income or loss over a specific period. They reflect the total loss or profit gained by the company in a financial year.

  • Cash Flow Statement

This is the statement that shows the inflow and outflow of the cash from different financing activities of the business.

  • Notes to the Financial Statements

Provides additional information and explanations to the main financial statements. They will point all important financial aspects of the organization.

Financial Audit

It is the independent inspection of the financial transactions, records, and other systems related to it. Here, the reliability, accuracy, and accounting standards and regulations compliance are considered. A financial audit provides an unbiased and objective examination of the information provided in the financial reports. They help to detect errors and bring accuracy to financial transactions.

Some important aspects of financial audit are:

  • Performed by external auditors (independent accounting firms) who are not part of the organization being audited.
  • Auditors review financial statements, accounting methods, internal controls, and supporting documentation.
  • The audit process involves obtaining evidence through testing and verification of financial transactions.
  • Auditors express an opinion on whether the financial statements present a true and fair view of the company’s financial position and performance. The audit report is attached to the company’s financial statements, providing assurance to stakeholders about the reliability of the financial information.

These are some important differences between financial reports and financial audits. Businesses need to bring accounting accuracy in them to ensure proper financial management.

If you are looking to outsource financial reports and financial audit work to experts then you can consider Meru Accounting for it. Meru Accounting has a team of experts in handling financial reports and financial audits. They have proper knowledge of the regulations needed in the USA. Meru Accounting is a proficient accounting services providing agency around the world.

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