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4 Rewards of an External Financial Audit | Perry And Associates CPAs

example of accountant doing an external financial audit

Big Rewards for Small Businesses from an External Financial Audit

 

Yes, it is true that external financial audits are only required for publicly traded companies, but that does not mean that you should skip one for your small business. Below we’ve outlined the ways that we see businesses benefit over and over again from an external audit. 

4 Rewards of External Financial Audits 

 

Unbiased Validation

External audits are required for publicly traded businesses so investors, both current and potential, can make an informed decision based upon real numbers about whether or not to continue or begin investing in the business. Because the audit is performed by an unaffiliated third party, the information can be trusted as impartial, as it truly speaks to the financial health (or lack thereof) of the organization. 

For this very same reason, it is ideal for privately owned businesses to seek an external audit as well. Though a local restaurant, non profit organization, or other small business may not be seeking investors in the traditional sense, it is likely that continued growth may dictate financial support from a bank, sponsor, partner, government, or grant source at some point. 

Having a professionally conducted external financial audit for those entities to review will set you apart from other similar organizations.  In fact, many grantors and lenders have begun requiring an audit as a part of the application process for funding. This provides a trustworthy and unbiased report as opposed to simply internal accounting records.

 

Compliance Check

Especially in today’s ever-changing tax compliance climate, it can never hurt to have a second set of eyes ensuring that your business accounting methods comply with current tax regulations. 

This is also an issue that often surfaces as your organization grows. One avenue may have been acceptable in the past because your company was not netting enough profit to need to report in a certain category, or you may have branched into a new sector of business, or a new state or city. All of these may require different regulation compliance, and it’s important you stay current on these issues.

 

Improving Efficiency

We know that as small business owners, managing your financial reports and bookkeeping can get pushed to the side as other pressing issues demand your immediate attention. Professional CPAs may be able to offer game-changing advice after analyzing your books for how to streamline or automate some of your financial processes. This is guaranteed to make life easier for your operations, your tax-time preparation, and the creation of your financial reports in the future. 

Finding where time and resources are being wasted is invaluable. As part of the external financial audit, the auditor will provide a report of all the necessary changes. An outside perspective and professional opinion can bring much-needed improvements. Business owners are often too far “in the weeds” to see where financial mistakes that are wasting both time and resources are being made.

 

Fraud Prevention

No one likes to dwell on the possibility of fraudulent behavior within your business, especially if your small business is operated by family and close friends. Unfortunately, fraud is a real possibility and can be even more prevalent in small organizations where fraud is unassumed. 

Businesses see great success by scheduling an external financial audit yearly. This not only keeps financial records in good order, but this audit can help to keep potential fraud at bay, simply by employees and partners knowing that it will be happening. 

If you do suspect possible fraud in your organization, an external auditor provides a buffer that makes it look less like you are targeting a specific person’s behavior by having someone look at the overall picture. Even if there is never any fraud in your business, an external auditor’s involvement in your business is invaluable.

Professional External Auditor Near You

At Perry & Associates, our forensic account team is directed by president, Jodey Altier. Our team holds the “Credited in Financial Forensics” (CFF) credential, signifying high expertise and knowledge in forensic accounting. We have had decades of experience in financial fraud investigations, prevention, detection, and deterrence that allow us to quickly and efficiently identify any red flags. Contact us to discuss your company’s external financial audit needs today.

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PPP Loan Tax Implication Questions Answered | Perry And Associates CPAs

PPP Loan Tax Implication

2020 PPP Loan Tax Implications

 

How will CARES Act Funding impact your 2020 Taxes?

 

2020 was a year for the books, so it probably comes as no surprise to you that last year may have a unique impact on your books. If your business received a slice of the $5 billion+ pie that was the Paycheck Protection Plan in 2020, you’ll want to know about the PPP loan tax implications that will apply for 2020 filing. Will you be taxed on this income? Are you allowed to deduct expenses paid for with PPP? We’ve outlined a few of the common questions we have been receiving in hopes to help you gain a foundational understanding. As always, see your CPA for legal tax advice regarding your specific situation. 

 

Will my business be taxed on PPP income?

In December of 2020, the Coronavirus Response and Relief Supplemental Appropriations Act clarified that a forgiven PPP loan is entirely tax-exempt and is classified as non-taxable income. Your PPP loan is forgivable as long as the money was spent on payroll expenses, mortgage interest, utility payments, rent, operational expenses, property damage costs, (due to public disturbances in 2020), supplier costs, and/or worker protection expenditures.

 

Can my business deduct traditionally deductible expenses paid for with PPP Loan Income?

Yes. The Coronavirus Response and Relief Supplemental Appropriations Act passed in December 2020 reversed the original decision not to allow deduction of expenses paid for with PPP income. The decision was reversed due to the fact that some businesses may have had higher taxable revenue in 2020 than in previous years without being able to write off as many expenses. 

 

Can payroll taxes be deferred if my business received a PPP loan?

Yes, payroll taxes from March 27th, 2020, through December 31st, 2020. Even if your PPP loan is forgiven, you may still defer the payroll taxes. Fifty percent of the deferred taxes accumulated in 2020 must be paid by December 31st, 2021, and 50% of the deferred amount must be paid by December 31st, 2022.

 

Can my business use PPP funds to pay for 2020 taxes?

No. PPP loans can only be used to pay for specific outlined expenses outlined in the answer to question number one above, so taxes cannot be paid with PPP funds.

 

A note on other CARES ACT income:

 

PUA- Pandemic Unemployment Assistance

It often comes as a surprise to many, but unemployment benefits are considered taxable income. You will still owe state and federal taxes on any unemployment compensation that you have received. However, you will not owe any medicare or social security taxes. Some people opt to have the taxes automatically withheld from their benefits by filing a W-4V, but if you do not remember specifically requesting to have taxes automatically withheld, then you will still owe them when reporting the income you received on your 2020 tax return. You should have received a 1099-G from your state labor office stating how much PUA compensation you received and if any taxes were already withheld.

 

EIDL- Economic Injury Disaster Loan (and Grants)

EID Loans will be treated as any other loan when it comes to tax time, but EID grants have been declared tax-free and it is, therefore, unnecessary to include that grant amount in your taxable income total for 2020.

 

Still have questions?

The U.S. Chamber has released an updated guide to Small Business COVID-19 Emergency Loans that further explains the substantial changes passed into law in December 2020.

Looking for Professional Help Sorting Out PPP Loan Tax Implications?

Contact us for service you can trust! Perry & Associates CPAs has multiple offices throughout the Mid-Ohio Valley.