Signs it’s time for a CPA Audit

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All companies need to comply with the standard regulations set by the regulatory institutes. For example, financial statements must be made in accordance with the applicable reporting framework, like GAAP or IFRS.

In addition to so many other factors, a CPA gives reasonable assurance about the presentation of financial statements of a company by corroborating disclosures and misstatements while conducting an audit.

Before we start talking about signs for the CPA’s audit, let’s first look into why your business even needs a CPA for an audit.

When Does your Company Need a CPA Audit

A CPA holds exceptional expertise when it comes to giving advice on financial matters. 

Since a CPA goes through a rigorous process of obtaining certifications and passing standard financial exams, it gives him/her extra credibility while conducting your financial audit.

Following are some of the certifications a CPA holds:

  • Certified Public Accountant (American Institute of Certified Public Accountants)
  • Certified Public Accountant (Texas State Board of Public Accountancy)
  • Chartered Accountant (Chartered Professional Accountants of Ontario)
  • U.S. International Tax: Core Concepts (Association of International Certified Professional Accountants)
  • U.S. International Tax: Inbound and Outbound Transactions (Association of International Certified Professional Accountants)
  • U.S. International Tax: Advanced Issues (Association of International Certified Professional Accountants)

This is the reason that the IRS only gives CPAs the right to sign your tax returns and represent a taxpayer in front of the IRS.

Also read: 5 underrated benefits of hiring a CPA

Furthermore, there are a number of reasons that you may need a CPA to perform your audit: inconsistent financial data, optimizing operations, detecting fraudulent activities, etc.

Which of the Business Models Needs an Audit?

There is no specific business model that may need an audit. It is possible you are a small business and want to set your financial statements with the standard rules, and this may call for an audit.

It is also possible that you are a multi-national firm and need an audit of the company. However, we have gathered some of the business models that may need an audit.

  • Venture-backed: 
    Many venture investors demand audits, though not all do. They can demand a thorough examination of your financial statements carried out by a qualified third party.
  • Bank-affiliated: 
    Not all banks will demand an audit of your company’s financial records. However, many people of a particular size do need them.
  • Public: 
    If you want to take your company public, you must first have three years of audited financial records. Furthermore, there are a number of reasons that you may need a CPA to perform your audit: inconsistent financial data, optimizing operations, detecting fraudulent activities, etc.

We covered each section in detail in the coming section of the article.

Signs it’s time for a CPA Audit

1. Your Business is Growing

When your business is growing, cash inflow and cash outflow can increase, meaning it’s more resource-intensive to track sales and inventory. For instance, when your sales for a product are high, you increase the inventory, payroll, staff, storage, etc. 

The probability of missing out on minute details is very high which can cause companies to experience huge losses in the future. 

In such cases, it’s better to hire a CPA to help you perform an audit and adjust your proper books.

2. You Are About to File Taxes

Whenever you file taxes, you need to report an accurate amount of annual income to the IRS. If you misrepresent the income amount, the IRS might impose penalties on you.

Moreover, It has been observed that around 60% of small business owners spend 40 hours on tax preparation every year. 

A CPA’s audit will assist you in filing your taxes with accurate income and can save you from the extra hassle of gathering all the documents.

3. Huge Revenues, No Profits

If your company is growing and making a lot of money, then that’s a healthy indicator of its profitability.

However, when you are generating revenue at a good pace and can’t see any profit, then it is a sign that you may need to optimize operations or find inconsistencies.

Therefore, It is better to keep a check and balance of your records with a CPA’s audit.

4. The IRS Wants to Audit your Financials

If the IRS or any other regulatory body is performing an audit of your company, then they may ask you to submit any document to inquire about the inconsistencies in your financials.

A single regulation can cause you to incur huge penalties.

A CPA spends years facing these audits and questions by the IRS. He/she can review your records and make sure they are accurate and up-to-date according to the desired standards set by the IRS.

5. You Find Inconsistent Data

Your data is an asset to your company. If your data is not managed properly, then your company is at risk of errors and anomalies.

There are times when your income statements do not match the cash inflows and outflows of your company. In such cases, you need to trace the reason behind these inconsistencies.

A CPA’s audit can help you to trace anomalies, fraudulent activities, and errors in your financials.

6. Mergers and Acquisitions

When deciding whether to merge with or acquire another company, your company must consider the value of the business.

It is preferable to have your financial statements audited by a CPA so that you understand the value of your assets and the other firms can rely on your statements to perform the merger or acquisition.

A CPA audit will help you:

  • Determine the capability of the business’s profitability.
  • Earn the trust of the other firm.
  • Accurate decision-making.

7. You Are Facing Huge Losses

If your company is facing a financial loss, then it’s important to get your accounts audited. It will give you a better perspective on how the loss occurred and what to do to overcome it. 

Furthermore, if your accounts are in deficit and you apply for a loan from a bank, you will be required to provide an audited report from a CPA. 

A CPA audit can help banks to trust the data. Furthermore, it helps you to optimize operations by trusting accurate data.

8. You Are Paying Too Much in Taxes

If you are paying regular taxes, and are not taking advantage of any deductions and credits, there is a high probability that you are paying extra in taxes.

This is essentially a liability on your business since cash is the soul of a business. Moreover, optimizing your business to reduce operational costs produces sustainability in the business.

While saving extra money on taxes, companies increase minimum wages, increase employee benefits, expand business operations, etc.

Also Read: What Can I Write Off for my Small Business

If you are paying extra money on taxes, you need a CPA to conduct your audit on an immediate basis. It can save cash burn and optimize your businesses for cash flow.

Documents Required for a CPA Audit

Once you are ready for a CPA audit, you need to submit him/her a list of documents since the IRS requires you to keep some of the substantial business documents for a time period of 7 years. 

Access to the following will be needed for a regular audit:

  • Extensive transactions
  • Bills
  • Tickets
  • Verification of assets like cash, accounts receivable, etc.
  • Logs & diaries
  • Equity records
  • corporate records
  • Material agreements
  • Theft or loss of records
  • Internal system controls are reviewed
  • Profit & loss records

For additional information on what IRS records you need to keep, consult with an experienced CPA.


Many companies, like Enron and Parmalat, have defrauded people by manipulating records. A CPA audit is mandatory to keep a check and balance on your company’s records. You can take informed decisions, optimize operations and detect fraudulent activities.

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