In the global marketplace, message discipline often forces businesses to look at when and how to communicate performance data. Being forthcoming with financial information buys firms a privileged status in investors’ hearts. Public officials require that publicly traded companies publish audited accounting reports at the end of each year. Businesses use unaudited financial statements for various initiatives, including applying for loans and presenting interim operating results.
An unaudited financial statement is an accounting report that corporate reviewers have not checked for accuracy. In other words, financial auditors cannot tell whether the data summaries will pass muster when it comes to regulatory compliance, completeness and mathematical correctness. Financial statements that do not span a whole year are usually unaudited--as auditing often represents a significant budget component, especially if corporate activities cover many countries and business segments.
In modern economies, financial reporting often conjures up images of joyful corporate executives confidently speaking to investors and journalists while television cameras roll. This is the best-case scenario, which comes from posting positive numbers. When a company’s financial statements show mediocre performance, security exchange players may strike a defiant tone and conclude that the firm faces an uncertain future. Accounting reports include a balance sheet, an equity report, a statement of cash flows and a statement of profit and loss. Financial accounts--the items making up performance data summaries--include assets, liabilities, revenues, equity capital and expenses.
Companies prepare unaudited financial statements for various reasons. They may do so in a loan application process or during the due diligence part of a corporate expansion plan, such as a merger, acquisition or joint venture. Due diligence means investigating a business or person before signing a contract or purchasing a company. Business partners, such as suppliers and contractors, also request interim financial statements to gauge a company’s economic solidity. These reports enable commercial allies to determine a firm’s blockbuster products, paying attention to risky processes that flare across the company’s operations.
Financial Statement Audit
To understand what’s missing in an unaudited financial statement, it is useful to master what a financial statement audit is. This is a methodical, step-by-step approach that allows external reviewers to call management’s operating strategies into question. Specifically, financial auditors take a peek at internal controls in accounting mechanisms and ensure regulatory compliance. They also delve into accounting balances, testing them in accordance with generally accepted auditing standards (GAAS). Besides GAAS, financial auditors review accounting data using generally accepted accounting principles and international financial reporting standards.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.