Last week, we started our series on risk assurance for small businesses by providing a broad overview. This week we’ll drill down and look at compilation, gathering data and information to determine risks.
This may not be the stuff of business reality shows, but it is foundational. The risk assurance process won’t be effective if you don’t compile the data correctly. That means wasted time and money, at best.
At worst, it could be the seed of a failed business.
So, this week, we’ll go over what sort of data might be necessary, how it gets compiled, and how it is analyzed to determine threats.
Collecting and Organizing Data
You will be collecting a lot of data. Remember, we’re trying to discover where the risks lie, so every stone must be turned.
Your CPA can guide you on what is needed, but you’ll want to be ready for anything.
That includes gathering financial data, such as income statements, balance sheets, and cash flow statements. It also encompasses operational data such as processes, workflows, procedures, and policies.
Documents proving compliance with tax and employment laws are also critical.
Finally, you’ll need to collect internal control documents and incident reports documenting identified risks.
Okay, all the data is collected and turned over to the CPA. Now what?
This is where the real help comes in. Your CPA should follow a structured approach to using the compiled data, and they should go over that process with you.
You’ll know the process is good if a few things happen.
First, the CPA should categorize the data into areas of risk, including financial, operational, compliance, and any other areas specific to your business.
Next, they should assess the potential impact of each risk.
It is vital to work with a CPA who knows your industry and works closely with you to understand your business inside and out. That knowledge and collaboration are crucial to determining what risks are a priority and which can wait.
The CPA may also do a control assessment to see if you have effective processes to mitigate identified risks.
They may also conduct a root cause analysis on any existing issues.
Reporting to determine threats
Of course, none of this compilation or analysis does any good if it isn’t communicated effectively. So, you should expect a thorough report on your CPA’s findings and have it explained clearly and understandably.
But it should go beyond just reporting. Your CPA can help you with the decision-making process in determining how to implement strategies to counteract risks found. They should also offer advice on internal controls.
The Bottom Line
The compilation process is foundational in good risk assurance. Your CPA should be able to help you get the data needed and then use that data to help you avoid or mitigate risk.
Next week, we’ll take a very specific dive into the financial elements of risk assurance by looking at CPA audits and how they can help your business. See you then!