A company audit has multiple benefits and can easily add a lot of value to your business. But for those who are a little apprehensive or unsure about what they are and why you might need one, we’ve put together this guide to help you understand the ins and outs of financial auditing.
What is an audit?
To put it simply, an audit is where an objective or independent body (usually a Certified Public Accountant) will come and do an official inspection of your company’s financial accounts.
This is to make sure that they are a fair and accurate representation of the transactions that they claim to be. Not every company needs an audit but for some, it is a legal requirement.
As of 2016, GOV.UK states that your company may qualify for an audit exemption if it has at least 2 of the following:
- An annual turnover of no more than £10.2 million
- Assets worth no more than £5.1 million
- 50 or fewer employees on average
However, even if your company is exempt from an audit for the above reasons, certain members of your company, such as the shareholders, can still request one if they deem it necessary.
The main purpose of an audit is to ensure that a business, company, or organisation keeps accurate financial records and follows proper accounting principles in accordance with financial law.
What are the benefits of being audited?
Having someone rummage through your accounts can seem a little daunting at first but an audit can actually offer your company a range of hidden perks. So, even though you may not need one, why not take a look at some of the audit services available to you and see how your company could profit.
Compliance
One of the main reasons a company will conduct an audit is to make sure they’re meeting the statutory requirements of their particular industry.
It’s important to note that non-compliance can mean that a business incurs not just monetary fines but also a tarnished reputation which could result in a loss of customers.
Although these aren’t necessarily at the very top of every company’s priority list, this kind of damage to a business can significantly outweigh the costs, temporary awkwardness and inconvenience of a simple audit.
Internal improvements
When a thorough audit is being conducted, it doesn’t just inspect your financial documents, it also takes a look at your internal systems and processes. This means that the audit can actually identify any issues or in fact suggest better ways of working. Ways of improving your company’s systems, controls, practices, efficiencies and even culture can all be detected via the audit process.
This is a great way to keep up to date with your company, as well as improve your business from the inside out. It can even alert you to potential issues, saving you time and money in the future. An audit can also give you an insight into your company’s culture that you may not have been previously aware of, making you more able to confront any problems and create a pleasant working environment for all your employees.
Fraud prevention
Any business should have some form of fraud preventative measures and detection controls to stop any internal fraud from happening. During the auditing process, the independent body will review these, letting you know if there’s room for improvement or if you need to take further action.
Experienced auditors are skilled in identifying fraudulent characteristics, and can spot red flags that could be a sign of where internal fraud may have been committed. This can give you some added peace of mind as it’s possible for workplace fraud to go on unnoticed for years, and in some cases be so substantial that a business never fully recovers financially.
Company credibility
Because an audit is performed by an unbiased and objective third party, it provides independent verification that the financial statements are both true and fair, giving your company invaluable credibility.
In fact, regular auditing of your financial statements can provide assurances for both potential new investors and current shareholders alike, so they can feel safe in the knowledge that they can continue investing in the company.
Audits can also improve your relationship with the bank, and even help with your credit rating. Did you know that an audit can actually be a requirement by banks when a company is applying for a loan and therefore help improve the chances of being successful?
An audit is an important process that many organisations should consider and not shy away from. Whether they’re legally required to conduct one or not, there are many positives to performing an audit for your business. If you are keen to improve your company by pinpointing and correcting any issues, enhancing processes and therefore increasing productivity, then an audit can be an effective place for you to start.