Audited financial statements have been examined by an independent CPA who provides a formal opinion that they present fairly, in all material respects, in conformity with GAAP. This is the highest level of financial statement assurance.
An audit is the most rigorous form of independent financial statement examination. A CPA firm performs fieldwork — testing internal controls, confirming transactions with third parties, verifying asset existence, analyzing accounting estimates — and issues an opinion. The standard opinion is 'unqualified' (clean): the statements present fairly in all material respects in conformity with GAAP. Qualified, adverse, or disclaimer opinions signal problems. Audits are expensive. For small businesses, audit costs typically range from $25,000–$200,000+ annually depending on entity size and complexity. Mid-market companies ($10M–$50M revenue) commonly spend $50,000–$150,000/year. The cost is justified when lenders or investors require it, or when regulatory mandates apply. Lenders typically require audited financials for: loans above $5M–$10M (thresholds vary by institution), public companies and regulated entities, nonprofit borrowers, franchisors, and businesses with complex ownership structures. SBA lenders generally accept tax returns and/or reviewed or compiled statements for loans up to $5M. The audit cycle creates a compliance calendar: fiscal year ends, auditor fieldwork (typically 2–4 months post-year-end), draft statements, management review, final issuance. Lenders with covenant-based audit delivery requirements build this into their timeline.
When a lender requires them (typically loans above $5M–$10M), when federal grants or contracts require single audit compliance (2 CFR Part 200 requires single audits for entities expending $750K+ in federal awards), or when investors or board governance requires it. Many small businesses never need a full audit — reviewed or compiled statements are sufficient for most SMB lending.
For a first-year audit of a small business (under $5M revenue): typically 2–4 months from fieldwork start to final report. Subsequent years are faster (1–2 months) because the auditor has established internal control understanding. Larger or more complex entities take longer. Tight lender timelines sometimes require rush audits, which cost significantly more.
A clean (unqualified) opinion means the auditor found the statements present fairly with no material exceptions. A qualified opinion means 'except for X, the statements present fairly' — X is a specific issue. A qualified opinion on going concern (doubt about the business's ability to continue operating for 12 months) is a serious red flag that lenders scrutinize heavily.