Financial restatements are costly and time consuming for your small business. They hurt your business by weakening investor confidence. If a company is asked by the authorities to make a financial restatement, most investors will feel there is some fraud involved, even though the mistake might just be the result of auditing errors. This is the reason why financial restatements should be avoided.

Avoiding Financial Restatements

Here are some ways to avoid financial restatements.

1) Single Close

A Single Close connects close activities of the finance department with rules and regulations pertaining to financial reporting. Single close helps businesses avoid the errors that they would, otherwise have made on areas of material weaknesses.

How does Single Close help

1.1. You can give your attention to analysis of company finances instead of worrying about the process.

1.2. You can reduce the cost of audits.

1.3. You can weed out the potential for material weaknesses.

2) Avoid Misclassification

When the FAS 95 standard of classification was notified, auditors started putting the cash flow into the recently notified categories. They neglected the cash flow from previous operations. This type of misclassification leads to financial misreporting, and consequently financial restatement.

3) Audit Controls

Use the services of an independent audit firm and put audit controls in place so that financial mismanagement is minimized.

4) Management Ethics

The management should remain steadfast on ethics. Standing by legal auditing practices helps you to avoid the embarrassment of financial restatement.

5) Engagement Quality Reviews

Before you call in an external auditor to go through your company’s finances, call an internal auditor to review the auditing already done by another internal auditor. If the two company auditors come up with varying responses, then you need to review the financial statement before finalizing it.

6) Cross Check with Actual Assets

After the auditor has submitted his report on the company finances; cross check the report with your actual bank balance.

Avoiding financial restatements helps you maintain investor confidence. The modifications of laws regarding financial statements have also made things easier for many small business owners. If you feel that you need help in the matter of drawing financial statements, or have been asked to make a financial restatement, you can approach a small business consultant for help.