Sunday, 07 September 2014 00:00

How Reliable is your Financial Statements? Featured

Written by Jorge Verar CPA
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Efficiency in financial reporting is important for any organization to gain a competitive advantage. Financial reporting and analysis involve the preparation of different kind of reports and the analysis of the data to determine the financial health of a company. Financial statements cannot be useful if they are based on unreliable and inaccurate recordings of transactions. There is no greater example of the garbage in, garbage out principle than financial statement preparation. The problem is that financial statement users cannot usually assess the presence of garbage simply by reading the statements. The statements may look fine, but in reality, be riddled with inaccuracies.

If your organization is looking for expert financial reports and financial analysis services, we have solutions for every small business challenges in accounting information system and help you gain access to financial reports at a cost-effective price.

Accuracy of Financial Statements

The two main sources of financial statement inaccuracy are deliberate dishonesty and incompetence. There are two principle ways to combat these problems. The first method is to regularly hire an outside accounting firm to audit the financial statements. In an audit, the outside accountant tests reported account balances for accuracy. As importantly, the auditor tests to see that the accounting principles used in recording transactions are in conformity with GAAP and applied on a consistent basis. Despite some notorious recent audit failures involving large corporations, the auditing process, in most cases, provides a reasonable safeguard against fraudulent and inaccurate financial reporting. 

The second method used to prevent fraudulent and inaccurate financial reporting is the adoption of adequate internal controls. Internal controls are the policies and procedures that a business can take to safeguard its assets, ensure accuracy of financial reporting, and prevent fraud. These methods are not mutually exclusive. In the best of all worlds, firms would have both good internal controls and regular audits.

Unfortunately, hiring outside auditors and having the very best internal controls can be expensive, especially for small firms. The question of how much money should be spent on auditing and internal controls is a matter of perspective and circumstances. For example, a small business owner who uses the financial statements for internal management purposes only has little incentive to hire an outside auditor. On the other hand, small business lenders and outside investors have a much greater need for audited financial statements. 

For many, if not most, small businesses, regular audits are an unnecessary expense. The same cannot be said about adequate internal controls. Even the smallest business can benefit from well-designed controls designed to prevent fraud, theft, and accounting errors. In fact, small business owners are more likely to be the victims, rather than the perpetrators, of financial statement fraud. All too frequently a lower level bookkeeper or accountant will “cook the books” in order to cover theft and embezzlement. For this reason, it is important to have some understanding of internal controls. 

We can help you prepare for audit - review your financial reporting, internal control and recommend appropriate solutions and help you implement your accounting information system not only the right way but cost-effective.

CALL US 713-931-3080

 

Read 23 times Last modified on Saturday, 11 November 2017 20:29

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JLVerar CPA, PLLC is not just your average Accountant. We are committed to providing close, personal attention to our clients. We take pride in giving you the assurance that the personal assistance you receive comes from years of advanced training and technical experience. Our continual investment of time and resources in professional continuing education, computer technology, and business relationships is indicative of our commitment to excellence.

 

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