A financial audit is rarely an occasion for celebration. Rather, an audit is performed to meet requirements by lenders, investors, or regulatory agencies. Here are benefits of a financial audit:
Ensure Accuracy and Reliability: An audit provides an independent and objective assessment of an organization's financial statements, records, and transactions, verifying accuracy and completeness to vested stakeholders: senior management, investors, creditors, and/or regulatory authorities.
Legal and Regulatory Compliance: Financial transactions are subject to regulatory review, such as a U.S. Securities and Exchange Commission (SEC) review of a proposed merger or initial public offering (IPO). Virtually all transactions are subject to review by government agencies charged with protecting commercial and personal finance, such as the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the Commodities Futures Trading Commission (CFTC), and state and industry chartering organizations. Compliance with these requirements is an essential element for a successful deal.
Facilitate Access to Capital: Banks and financial institutions typically require an audited financial statement when extending loans or credit to assess the borrower's financial health and ability to repay. For publicly traded companies, a clean audit can enhance the company's credibility, making it more attractive to investors.
Fraud Prevention: Part of an audit’s purpose is to detect any fraudulent behavior, misappropriation of funds, manipulation of financial statements, or other irregularities.
Assess Internal Controls: An audit evaluates the effectiveness of an organization's internal controls and risk management processes, with an eye to practices that could lead to misstatements or increased risk exposure. The audit process should indicate where improvements are needed.
In summary, financial audits are necessary to ensure the accuracy of financial information, comply with laws and regulations, detect and prevent fraud, evaluate internal controls, enhance credibility, and facilitate access to capital. They provide assurance to stakeholders and contribute to the overall integrity and transparency of financial reporting.
Background
A financial audit is a fact of life for most organizations. Audits are performed to ensure the financial health of a company or organization in order to meet the requirements of stakeholders. Stakeholders may include creditors, lenders, suppliers, customers, and/or potential partners. In the case of publicly traded companies, an audit report provides assurance to the shareholders regarding the financial health and transparency of the audited entity.
In performing a financial audit, a company may choose to hire an auditing firm to telegraph that they are providing an independent and impartial review. Even with an outside auditing firm, an in-house team is responsible for assembling and coordinating access to documentation and key company personnel. Additional parties to the audit process may include analysts, lawyers, narrative writers, and regulatory experts. Once the audit preparation is complete, the document is submitted to potential partners or investors, customers, or regulatory agencies.
Challenges Faced
The financial audit process requires the storage, evaluation, and sharing of highly confidential company records. As such, the audit process presents several security challenges:
Security and Confidentiality: The audit process requires gathering and sharing highly confidential records of a company’s financial performance. Depending on the nature of the audit, those confidential documents may include:
- Three to five years of financials performance reports, including annual reports, tax filings, profit and loss statements, the general ledger, accounts payable statements, and a schedule of the latest accounts receivable.
- Records for partnership agreements, vendor and supplier contracts, and securities and real estate purchase agreements, and any legal liabilities.
- Intellectual property, including patents, logos, and other legally protected assets.
- Physical assets, including real estate, manufacturing equipment, office equipment and supplies, inventory, and raw materials.
Information Exchange: These confidential documents are shared among the auditing team and their third-party experts. The collaboration process has inherent security vulnerabilities, especially when participants opt to share documents by email or a file-sharing program or are in remote locations using consumer-grade routers and servers.
Given the security risks in the audit process, providing an ultra-secure environment for document storage and sharing is an absolute must.
Protect Archived and Shared Documents in a Virtual Data Room
The best solution for a financial audit is a virtual data room (VDR), an online platform for storing and sharing confidential information. A VDR from a quality provider like ShareVault provides a full array of safeguards:
- All documents in the VDR are automatically encrypted
- Access to documents is limited to an authorized list of users who gain access using a two-factor password
- Even those who have access have defined permissions for use, such as save, print, copy, or view only, and expiration dates on access
- Protected access and document sharing can be extended to analysts, accountants, the legal team, regulatory experts and other third parties, even those in remote locations
- When the process is complete, access to the audit report and its supporting documents can be extended to investors and other stakeholders
ShareVault, with more than 15 years of experience in finance including audits, M&A, IPOs, and reorgs, recognizes the time pressures of an audit. To speed the process, ShareVault provides organizing software and time-saving tools like integration with file-storage apps, drag-and-drop uploads, a powerful full-text search engine, and inter-document hyperlinking.
Benefits of a Secure Online Environment
Providing an ultra-secure environment for an audit not only protects confidential documents, but also enhances your company brand, especially with investors and other industry pros. In today’s business environment where hackers are a constant threat, a company that employs state-of-the-art security is clearly a market leader.
Conclusion: Ensure Audit Confidentiality with a VDR
This case study illustrates how a virtual data room can play an essential role in the financial audit process, by protecting confidential documents not only in their archived state but also when they are shared among the collaborating team performing the audit.
By addressing the challenges of security, and collaboration, a ShareVault virtual data room transforms the unwelcome task of a financial audit into a manageable process, one that builds pride in the audit preparation team and trust in their customers, partners, and other stakeholders.